Trading
How can I start derivative trading?
For starting a derivative trading, an investor has to register with a stock broker who is registered on the derivative segment of the stock exchange (NSE or BSE). He will also be required to execute the broker client agreement as well as give certain details about himself to the broker as a part of ‘know your client’ guidelines. You are also given a Risk Disclosure Document, specifying the risks of trading in the derivative instruments. As a prudent investor, you should carefully go through these documents carefully.
It has been specified that the value of a derivative contract should not be less than Rs. 2 lakh at the time of introducing the contract in the market. The contract size is frequently updated depending upon the current market price of the underlying.What is the lot size of contract?
Lot size refers to number of underlying securities in one contract. The lot size is determined keeping in mind the minimum contract size requirement at the time of introduction of derivative contracts on a particular underlying. For example, if shares of ABC Ltd are quoted at Rs.100 each and the minimum contract size is Rs.2 lakhs, then the lot size for that particular scrips stands to be 200000/100 = 2000 shares i.e. one contract in ABC Ltd. would be for 200 shares. Thus lot size of the contract is determined by the market price of underlying security and the minimum contract size at the time of introduction of the derivative contract on that underlying.
Stock exchanges have a predetermined criteria for selection of securities where derivative trading is allowed. The criteria are generally the market capitalization of the securities, liquidity and the securities are frequently traded on the stock exchange. Apart from individual securities, derivative trading is also allowed on Indices such as Nifty, IT Index and Bank Index. The list of securities on which derivative trading is available is constantly increasing.
What are the derivative products available in securities markets in India?
There are futures as well as option contracts available on individual securities. Apart from that one can also buy or sell options as well as futures on certain indices such as Nifty, IT Index, Bank Index, Sensex etc.
Categories: Derivatives
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