Derivatives are financial contracts of pre-determined fixed duration, whose values are derived from the value of an underlying

primary financial instrument, commodity or index, such as: interest rates, exchange rates, commodities, and equities

 Derivatives are contracts that have no independent

value They derive their value from their underlying assets They are used as risk shifting or hedging instruments

To hedge or insure risks; i.e., shift risk. To reflect a view on the future direction of the market,
i.e., to speculate. To lock in an arbitrage profit To change the nature of an asset or liability. To change the nature of an investment without incurring the costs of selling one portfolio and buying another.

 SEBI set up a committee in 1996 to develop appropriate regulatory framework for derivatives trading in India. SEBI constituted another group in June 1998 under the Chairmanship of L.C. Gupta J. R. Varma, to recommend measures for risk containment in the derivatives market. Derivatives trading on the Exchange commenced on June 12, 2000.

 The futures contract at NSE is based on S&P CNX Nifty # Index. It has a maximum of 3-month expiration cycle. Three contracts are available for trading I.e. with 1 month, 2 months and 3 months expiry.

 Market would improve with the introduction of Risk

Management tools like derivative Greater Participation from risk averse investor Increased in volume of trade and liquidation in the market Using it institutional investor will be able to hedge their risk in unfavorable market Excellent mechanism to manage portfolio risk FII investments In the country Indian Corporate can raise fund from global market

 Increases speculation in the market

Lack of transparency
Counterparty Risk FIIs can regulate the market in future

Create awareness and educate the investor

It needs huge liquidation in the market if failed can

leads liquidity crisis It can be used as tax evasion

 Yes, We need the derivative because it is ultimate

source of the liquidation in the market Hedges the risks for the investor But with proper training It will help in economical growth