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EVERYTHING YOU NEED TO KNOW ABOUT DERIVATIVES AND THEIR TRADINGDerivative contracts are effective tool for hedging and thereby reducing the potential of future risk. They also allow investors to take a leveraged position in the market and thereby increase the possibilities of earning higher returns.
What are the disadvantages of trading in derivatives? Because of their ability to provide leveraging, derivative disasters are pretty common in international markets. Just as there is huge potential of earning higher returns, it also exposes individuals and corporations alike to lose money in case the market moves against the positions held by them. What is risk management of derivatives in India? Stock exchanges follow robust risk management measures for derivative trading. These include, initial base minimum capital requirements, margins and daily mark to market margin system and initial Value at risk (VAR) based margin system. Apart from that there are various position limits, broker wise limits and scrip wise limits also to avoid build up of huge positions.
Who monitors derivative trading in securities market? Derivative trading in India is very well monitored by the stock exchanges (NSE has a pre dominant position as far as derivative trading is concerned compared to BSE) Besides SEBI also monitors the derivative through appropriate policy measures. |
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