What is Derivative market?
Derivatives are a useful financial instrument. By using different types of derivatives, you can remove the need to invest a large amount of capital upfront. A derivative allows you to benefit from market movements. If you are good at anticipating market movements, derivatives are a good friend since they allow you to earn returns quickly. They also double up as an effective tool to hedge risks.
The classical derivative definition is – A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset or set of assets. This is how many define derivative. Next, we will learn what the advantages of trading in types of derivatives are
What are the key benefits of derivative trading?
There are 4 main benefits of Derivative trading
1. Gain leverage – Derivative trading enables you to get higher trading exposure with a low margin amount.
2. Do hedging – Derivative trading allows you to de-risk yourself by hedging your positions. You can buy in the cash segment and agree to sell in the derivative market or vice versa.
3. Opt for risk as per choice – Derivative trading allows you to choose between conservative or high-risk strategies, these could be based on the expected rise and fall of stock prices/indices.
4. Access higher returns – With derivative trading, you have a possibility to get returns irrespective of market moving up, down or sideways.