Derivatives Market

Derivatives market in India began in 2000 when NSE and BSE commenced trading in equity derivatives. Since then India has become a huge and vibrant market for derivatives. Equity derivatives play a great role in price discovery. They help to enhance liquidity and also reduce transaction cost. Derivatives in share market gained importance as risk averse investors wanted to protect themselves against uncertainties due to fluctuations in prices of assets. As the asset prices are locked, derivative products lower the impact of fluctuations in asset prices and thereby serve as tools of risk management. These transfer risk from risk averse investors to risk takers. Derivatives derive their value from other existing asset classes such as equity, commodity, currency, etc. The participants in the derivatives market are Arbitrageurs, Hedgers and Speculators and there are 4 types of derivative instruments such as forward, futures, option and swap.