Blog

Growth Drivers of Derivatives
03-Jan-14 04:29PM

Over the last three decades, the derivatives market has seen a phenomenal growth. A large variety of derivative contracts have been launched at exchanges across the world. Some of the factors driving the growth of financial derivatives are:

Margins for trading in futures
13-Dec-13 03:12PM

Margin is the deposit money that needs to be paid to buy or sell each contract. The margin required for a futures contract is better described as performance bond or good faith money. The margin levels are set by the exchanges based on volatility (market conditions) and can be changed at any time. The margin requirements for most futures contracts range from 2% to 15% of the value of the contract.

Settlements of Futures contracts
16-Nov-13 04:13PM

Future contracts have two types of settlements, the Mark to Market (MTM) settlement which happens on a continuous basis at the end of each day, and the final settlement which happens on the last trading day of the futures contract. On the NCDEX, daily MTM settlement and final MTM settlement in respect of admitted deals in futures contracts are cash settled by debiting/crediting the clearing accounts of CMs with the respective clearing bank. All positions of a CM, either brought forward, created during the day or closed out during the day, are marked to market at the daily settlement price or the final settlement price at the close of trading hours on a day.

Hedging
13-Nov-13 05:19PM

Many participants in the commodity futures market are hedgers. They use the futures market to reduce a particular risk that they face. This risk might relate to the price of wheat or oil or any other commodity that the person deals in. The classic hedging example is that of wheat farmer who wants to hedge the risk of fluctuations in the price of wheat around the time that his corp is ready for harvesting by selling his corp forward, he obtains a hedge by locking to a predetermined price

Forwards contracts in derivatives
11-Nov-13 07:58PM

In recent years, derivatives have become increasingly popular due to their applications for hedging, speculation and arbitraging. While futures and options are now actively traded on many Exchanges, forward contracts are popular on the OTC market. A forward contract is an agreement to buy or sell an asset on a specified date for a specified price. One of the parties to the contract assumes a long position and agrees to buy the underlying asset on a certain specified future date for a certain specified price. The other party assumes a short position and agrees to sell the asset on the same date for the same price. Other contract details like delivery date, price and quantity are negotiated bilaterally by the parties to the contract. The forward contracts are normally traded outside the exchanges.

Spot Price and polling in commodity exchange
08-Nov-13 02:12PM

Like any other derivative a futures contract derives its value from the underlying commodity. The spot and futures market are closely interlinked with price and sentiment in one market affecting the price and sentiment in the other. Fair and transparent spot price discovery attains importance when studied against the role it plays in a futures market.

Difference between Commodity and Financial Derivatives
25-Oct-13 04:33PM

The basic concept of a derivative contract remains the same whether the underlying happens to be a commodity or a financial asset. However, there are some features which are very peculiar to commodity derivative markets. In the case of financial derivatives, most of these contracts are cash settled. Since financial assets are not bulky, they do not need special facility for storage, transport even in case of physical settlement. On the other hand, due to the bulky nature and physically existence of the underlying assets, physical settlement in commodity derivatives creates the need for warehousing.

Some commonly used Derivatives
24-Oct-13 04:33PM

Here we define some of the more popularly used derivative contracts. Forwards : A forward contract is an agreement between two entities to buy or sell the underlying asset at a future date, at today’s pre-agreed price. Futures : A future contract is an agreement between two parties to buy or sell the underlying asset at a future date at today’s future price. Futures contracts differ from forward contracts in the sense that they are standardized and exchange traded

Spot Vs Forward Transaction
21-Oct-13 01:59PM

Every transaction has three components – trading, clearing and settlement. A buyer and seller come together, negotiate and arrive at a price. This is trading. Clearing involves finding out the net outstanding, that is exactly how much of goods and money the two should exchange.

Commodity Futures trading
02-Sep-13 04:30PM

In India there is a controller under ministry of consumer affairs known as Forward Market Commission (FMC) for better management and transparency in trading of different commodities. FMC have given permissions to different national and regional stock exchanges for future trading of all listed commodities. The purpose for establishment of these exchanges is to get the fair and actual prices of different products and minimize the risk of exporters, traders and also helps the farmers.

Hedging the Safeguard of Investments
22-Aug-13 01:12PM

Hedging is the technique which reduces the investment risks of investors in stock market. The work done through counter balancing means another investment to hedge the risk of previous investment, in other words hedging the investment in different investment options those are having different approach. This need to be remembering there are some value for each hedge which have to be paid by investors, traders if market moves negative moreover hedging strategies can be wrong as it’s not a complete science.

Currency futures and its benefits
09-Aug-13 11:05PM

Currency futures are introduced in India in 2008. The opening of the currency derivatives in India was a revolution in the domestic financial markets. The currency exchange in India is rising day on day only because by increased awareness about the trade among all market players, base of forex market is based on USD-INR futures

What is Derivative and How to trade in Derivatives
14-May-13 05:07PM

Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities.