what is derivatives in stock market,how it is diffrent from equity shares?

Question

what is derivatives n how it is traded i n the stock market?

Answer 1

in derivaties u can buy a future stock by paying 20% amount of tht stock. its always in lot sizes, and thre are 3 way available for trading in derivative 1)current monty 2) next month 3)next to next month. it expires on the last thursday of every month.where in equity u can by a stock by paying the price at spot. and u can hold tht stock for as much time as much u want. long term investments are done in equity shares we can do short term trading also but in derivatives we can do only short term trading which can last for maximum 3 months.

Answer 2

A derivative is a financial instrument whose value is 'derived' from an underlying. This underlying can be the value of a stock (called the spot price) or anything (there are something known as weather derivatives also!). So basically you bet on the unknown.



In the stock market, there are primarily two types of instruments, futures and options. You bet on the upward or downward movement of prices.



With futures, you bet on what the future price of a stock is going to be. The future date is usually the last thursday of the month in the NSE. So we have the September futures, October futures etc. At any point of time there has to be someone taking the opposite stance; if you are going long, then there has to be a counterparty going short.



The idea is same with options, but it is more complicated to explain here. Check out NCFM on derivatives on the NSE site (www.nseindia.com)



The equity shares reflect the current prices, while the derivatives reflect the expected prices in future.

Answer 3

there is no difference between stock and share if you live in two different countries. In the USA we buy Company X stock. How much stock do we own? Tom has 1,000 shares of Company X stock, **** has 500 shares and Harry has 200 shares (kind of like Tom, **** & Harry all have money but Tom as $10, **** has $5 and Harry has $2). In India (and I don't know where else) they buy Company X share. Jane's portfolio is made up of 65% Equity type of security (stock {shares if she is in India}) and 30% Bonds or Debt type security and 5% cash type of security (money market, checking account or saving account in a bank/credit union, CD's).

Answer 4

Derivative is a financial product whose value is derived from an underlying financial asset, such as stocks, bonds, currencies or mortgages. derivatives may be listed on exchanges or traded privately over-the-counters. For example, derivatives may be futures, options or mortgage-backed securities.

Generally, they differ on the basis of risk reward profile. Derivatives allow for leveraging as well.

Answer 5

Derivatives are financial instruments whose value changes in response to the changes in underlying variables. The main types of derivatives are futures, forwards, options, and swaps.