Y Derivatives??

Previous article : Derivative basics

Derivative products initially emerged as hedging devices against fluctuations in commodity prices.

But we will talk about use of Derivatives in Equity Market….

Use of Derivatives

Hedging
Making an investment to reduce the risk of adverse price movements on your Portfolio.
A perfect hedge reduces your risk to nothing.
--Is done by the People who are not confident enough on the choice of there investment.

Speculation
The process of selecting investments with higher risk in order to profit from an anticipated price movement.
They call it a form of Gambling.
--The way for making or losing a lot of money

Arbitrage
The simultaneous purchase and sale of a Stock/Security/Contract in order to profit from a difference in the price. This usually takes place on different exchanges or marketplaces.
--I am still not able to find a real time direction to profit from this.

Out of the Above three I mostly indulge in Speculative trading and very rarely in Hedging.
And Speculation to me is Intuition, News, Market whispers and Mahitosh's Tips :D

Previous article : Derivative basics

Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
--Warren Buffet

Beyond Equity Trading -- Derivative Basics

Before you decide not to invest in Derivatives, you should understand them

From today I would like to share my experiences with derivatives and in the same time explain few basic principles. This tutorial will be in phases n I will go slowly and post small articles so that everyone can digest it.

What is a Derivative ?????
Investopedia Definition:
A derivative security can be defined as a security whose value depends on the values of other underlying variables.

Futures & Options are the most common types of derivatives.

A Futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price.

An Option is a contract, which gives the buyer the right, but not the obligation to buy or sell shares of the underlying security at a specific price on or before a specific date.

The primary Difference between options and futures is that options give the holder the right to buy or sell the underlying asset at expiration, while the holder of a futures contract is obligated to fulfill the terms of his/her contract.

Just try to look at the picture and get the basic understanding. Details will be available in future posts.

Click on the image to see larger picture.

Disclaimer:
Derivatives involve risks and are not suitable for everyone. Derivatives trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital.

Follow up article to Y Derivatives?