Limitations of Derivatives

The limitations of derivatives are as follows: Speculative and Gambling Motives: As derivatives offer leveraged positions, it allows participants with even low capital to indulge in high volume trading. While it magnifies the gains, it also leads to higher losses …

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Importance of Derivatives

The importance of derivatives are as follows: Reflect Perception of Market Participants: In a developed and organized market, the price of the derivatives will show the view of market participants about the future course of action for the market. It …

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Players in the Derivatives Market

Derivatives are used by businesses, individuals, and governments to accomplish a wide variety of objectives. These may be broadly classified into the following categories: Hedgers Hedgers are those traders who wish to eliminate price risk associated with the underlying security …

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Role of Derivative Market

Despite the fear and criticism with which the derivative markets are commonly looked at, these markets perform several economic functions: 1) Management of Risk: Financial derivatives allow for the efficient management of financial risks and can help to ensure that …

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Instruments/Types of Derivatives in India

Broadly derivatives can be classified into below categories: 1) On the Basis of Underlying Assets: Underlying asset is a term used in derivatives trading, such as with options. A derivative is a financial instrument whose price is based (derived) from …

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History of Derivatives Market

Derivatives are definitely not a modern invention. They were known and were used from ancient times. The first organized commodity exchange came into existence in the early 1700s in Japan. The first formal commodities exchange, the Chicago Board of Trade …

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Meaning and Definition of Derivatives

This type of security derives its value from the underlying asset. The value of the backing asset determines the value of the derivative security. A derivative security is mainly used for the purpose of risk management. The risks arising out …

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