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Derivatives market in IndiaDERIVATIVES: derivatives are financial instruments whose value is derived from underlying assets such as equity,bonds,foreign currencies and commoditiesDerivatives is also known as risk reducing mechanismDerivatives market in India broadly categorized into two types1.Financial derivatives markets2.Commodities future markets

Need /importance of derivatives marketDerivatives help in transfering risk from risk averse people to risk bearing peopleThey help in discovery of future as well as current pricesThey catalize entreprenueurial activityThey increase the volume traded in markets because of participation of risk averse people in greater numberThey increase savings and investment in the long run

Participants of derivatives marketHedgersSpeculatorsArbitragers

Hedging strategies in commodities futures

1.Short hedges2.Long hedgesshort hedge is a hedge ,that involves taking a short position in futures contractLong hedge involve taking a long position in a future contractIn short hedge the hedger already own a asset and expect to sell it in futureA long hedge is appropriate when a company knows it will have to purchase a certain asset in the future and wants to lock in a price now

Advantages of commodities futuresPrice discoveryPrice risk managementOperational advantagesMarket efficiency

Benefits of commodities futures

Driven on demand and supplyHigh leverageMarket timeings 10am to 11:55pmPrice manipulation not possible because of global marketVolatility gives chance for easy entry and exitEasy to understand and investIntrinsic value

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