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GP-Ruchit & Jinesh Final
GP-Ruchit & Jinesh Final
___________________________________________________________
Report submitted in complete fulfilment of the requirements of MBA program of
INDUS INSTITUTE OF TECHNOLOGY AND ENGINEERING
SUBMITTED TO:
INDUS INSTITUTE OF TECHNOLOGY & ENGINEERING,
Rancharda, Via Thaltej
Ahmedabad – 382 115
PHONE: 91-2764-260277
SUBMITTED B Y:
JINESH SHAH (097200592053)
RUCHIT SONI (097200592054)
ACKNOWLEDGEMENT
The final project report is submitted to INDUS institute of technology and engineering,
Ahmedabad for partial fulfilment of MBA.
EXECUTIVE SUMMARY 4
1. Introduction 5
3. Research methodology 42
4. Analysis 45
Annexure
a) Questionnaire 59
b) Abbreviations 62
EXECUTIVE SUMMARY
Derivatives are among the forefront of the innovations in the financial markets and aim to
increase returns and reduce risk. They provide an outlet for investors to protect
themselves from the vagaries of the financial markets. These instruments have been very
popular with investors all over the world.
Indian financial markets have been on the ascension and catching up with global
standards in financial markets. The advent of screen based trading, dematerialization,
rolling settlement has put our markets on par with international markets.
As a logical step to the above progress, derivative trading was introduced in the country in
June 2000. Starting with index futures, we have made rapid strides and have four types of
derivative products- Index future, index option, stock future and stock options. Today,
there are 30 stocks on which one can have futures and options, apart from the index
futures and options.
This market presents a tremendous opportunity for individual investors .The markets have
performed smoothly over the last two years and has stabilized. The time is ripe for
investors to make full use of the advantage offered by this market.
We have tried to present in a lucid and simple manner, the derivatives market, so that the
individual investor is educated and equipped to become a dominant player in the market.
INTRODUCTION
The study has been done to know the different types of derivatives and also to know the
derivative market in India. This study also covers the recent developments in the
derivative market taking into account the trading in past years.
Through this study I came to know the trading done in derivatives and their use in the
stock markets.
The project covers the derivatives market and its instruments. For better understanding
various strategies with different situations and actions have been given. It includes the
data collected in the recent years and also the market in the derivatives in the recent years.
This study extends to the trading of derivatives done in the National Stock Markets.
INTRODUCTION TO DERIVATIVES:
A farmer who sowed his crop in June faced uncertainty over the price he would receive
for his harvest in September. In years of scarcity, he would probably obtain attractive
prices. However, during times of oversupply, he would have to dispose off his harvest at a
very low price. Clearly this meant that the farmer and his family were exposed to a high
risk of price uncertainty.
On the other hand, a merchant with an ongoing requirement of grains too would face a
price risk that of having to pay exorbitant prices during dearth, although favourable prices
could be obtained during periods of oversupply. Under such circumstances, it clearly
made sense for the farmer and the merchant to come together and enter into contract
whereby the price of the grain to be delivered in September could be decided earlier.
What they would then negotiate happened to be futures-type contract, which would enable
both parties to eliminate the price risk.
In 1848, the Chicago Board Of Trade, or CBOT, was established to bring farmers and
merchants together. A group of traders got together and created the ‘to-arrive’ contract
that permitted farmers to lock into price upfront and deliver the grain later. These to-
arrive contracts proved useful as a device for hedging and speculation on price charges.
These were eventually standardized, and in 1925 the first futures clearing house came into
existence.
DERIVATIVES DEFINED
A derivative is a product whose value is derived from the value of one or more underlying
variables or assets in a contractual manner. The underlying asset can be equity, forex,
commodity or any other asset. In our earlier discussion, we saw that wheat farmers may
wish to sell their harvest at a future date to eliminate the risk of change in price by that
date. Such a transaction is an example of a derivative. The price of this derivative is
driven by the spot price of wheat which is the “underlying” in this case.
The Forwards Contracts (Regulation) Act, 1952, regulates the forward/futures contracts
in commodities all over India. As per this the Forward Markets Commission (FMC)
continues to have jurisdiction over commodity futures contracts. However when
derivatives trading in securities was introduced in 2001, the term “security” in the
Securities Contracts (Regulation) Act, 1956 (SCRA), was amended to include derivative
contracts in securities. Consequently, regulation of derivatives came under the purview of
Securities Exchange Board of India (SEBI). We thus have separate regulatory authorities
for securities and commodity derivative markets.
Derivatives are securities under the SCRA and hence the trading of derivatives is
governed by the regulatory framework under the SCRA. The Securities Contracts
(Regulation) Act, 1956 defines “derivative” to include-
A security derived from a debt instrument, share, loan whether secured or unsecured, risk
instrument or contract differences or any other form of security.
A contract which derives its value from the prices, or index of prices, of underlying
securities
TYPES OF DERIVATIVES
Derivatives
Expiry is the time when the final prices of the future are determined. For many equity
index and interest rate futures contracts, this happens on the Last Thursday of certain
trading month. On this day the t+2 futures contract becomes the t forward contract.
Pricing of future contract
In a futures contract, for no arbitrage to be possible, the price paid on delivery (the
forward price) must be the same as the cost (including interest) of buying and storing the
asset. In other words, the rational forward price represents the expected future value of the
underlying discounted at the risk free rate. Thus, for a simple, non-dividend paying asset,
the value of the future/forward, , will be found by discounting the present value
This relationship may be modified for storage costs, dividends, dividend yields, and
convenience yields. Any deviation from this equality allows for arbitrage as follows.
Price Not efficient, as markets are Efficient, as markets are centralized and all
discovery scattered. buyers and sellers come to a common
platform to discover the price.
CALL OPTION:
A contract that gives its owner the right but not the obligation to buy an underlying asset-
stock or any financial asset, at a specified price on or before a specified date is known as a
‘Call option’. The owner makes a profit provided he sells at a higher current price and
buys at a lower future price.
PUT OPTION:
A contract that gives its owner the right but not the obligation to sell an underlying asset-
stock or any financial asset, at a specified price on or before a specified date is known as a
‘Put option’. The owner makes a profit provided he buys at a lower current price and
sells at a higher future price. Hence, no option will be exercised if the future price does
not increase.
Put and calls are almost always written on equities, although occasionally preference
shares, bonds and warrants become the subject of options.
SWAPS -
Swaps are transactions which obligates the two parties to the contract to exchange a series
of cash flows at specified intervals known as payment or settlement dates. They can be
regarded as portfolios of forward's contracts. A contract whereby two parties agree to
exchange (swap) payments, based on some notional principle amount is called as a
‘SWAP’. In case of swap, only the payment flows are exchanged and not the principle
amount. The two commonly used swaps are:
The fixed rate payer takes a short position in the forward contract whereas the floating
rate payer takes a long position in the forward contract.
CURRENCY SWAPS:
Currency swaps is an arrangement in which both the principle amount and the interest on
loan in one currency are swapped for the principle and the interest payments on loan in
another currency. The parties to the swap contract of currency generally hail from two
different countries. This arrangement allows the counter parties to borrow easily and
cheaply in their home currencies. Under a currency swap, cash flows to be exchanged are
determined at the spot rate at a time when swap is done. Such cash flows are supposed to
remain unaffected by subsequent changes in the exchange rates.
FINANCIAL SWAP:
Financial swaps constitute a funding technique which permit a borrower to access one
market and then exchange the liability for another type of liability. It also allows the
investors to exchange one type of asset for another type of asset with a preferred income
stream.
The other kind of derivatives, which are not, much popular are as follows:
BASKETS - Baskets options are option on portfolio of underlying asset. Equity Index
Options are most popular form of baskets.
SWAPTIONS - Swaptions are options to buy or sell a swap that will become operative
at the expiry of the options. Thus a swaption is an option on a forward swap. Rather than
have calls and puts, the swaptions market has receiver swaptions and payer swaptions. A
receiver swaption is an option to receive fixed and pay floating. A payer swaption is an
option to pay fixed and receive floating.
The history of derivatives is quite colourful and surprisingly a lot longer than most people
think. Forward delivery contracts, stating what is to be delivered for a fixed price at a
specified place on a specified date, existed in ancient Greece and Rome. Roman emperors
entered forward contracts to provide the masses with their supply of Egyptian grain.
These contracts were also undertaken between farmers and merchants to eliminate risk
arising out of uncertain future prices of grains. Thus, forward contracts have existed for
centuries for hedging price risk.
The first organized commodity exchange came into existence in the
early 1700’s in Japan. The first formal commodities exchange, the Chicago Board of
Trade (CBOT), was formed in 1848 in the US to deal with the problem of ‘credit risk’
and to provide centralised location to negotiate forward contracts. From ‘forward’ trading
in commodities emerged the commodity ‘futures’. The first type of futures contract was
called ‘to arrive at’. Trading in futures began on the CBOT in the 1860’s. In 1865, CBOT
listed the first ‘exchange traded’ derivatives contract, known as the futures contracts.
Futures trading grew out of the need for hedging the price risk involved in many
commercial operations. The Chicago Mercantile Exchange (CME), a spin-off of CBOT,
was formed in 1919, though it did exist before in 1874 under the names of ‘Chicago
Produce Exchange’ (CPE) and ‘Chicago Egg and Butter Board’ (CEBB). The first
financial futures to emerge were the currency in 1972 in the US. The first foreign
currency futures were traded on May 16, 1972, on International Monetary Market
(IMM), a division of CME. The currency futures traded on the IMM are the British
Pound, the Canadian Dollar, the Japanese Yen, the Swiss Franc, the German Mark, the
Australian Dollar, and the Euro dollar. Currency futures were followed soon by interest
rate futures. Interest rate futures contracts were traded for the first time on the CBOT on
October 20, 1975. Stock index futures and options emerged in 1982. The first stock index
futures contracts were traded on Kansas City Board of Trade on February 24, 1982.The
first of the several networks, which offered a trading link between two exchanges, was
formed between the Singapore International Monetary Exchange (SIMEX) and the
CME on September 7, 1984.
The first call and put options were invented by an American financier, Russell Sage, in
1872. These options were traded over the counter. Agricultural commodities options were
traded in the nineteenth century in England and the US. Options on shares were available
in the US on the over the counter (OTC) market only until 1973 without much knowledge
of valuation. A group of firms known as Put and Call brokers and Dealer’s Association
was set up in early 1900’s to provide a mechanism for bringing buyers and sellers
together.
On April 26, 1973, the Chicago Board options Exchange (CBOE) was set up at CBOT for
the purpose of trading stock options. It was in 1973 again that black, Merton, and Scholes
invented the famous Black-Scholes Option Formula. This model helped in assessing the
fair price of an option which led to an increased interest in trading of options. With the
options markets becoming increasingly popular, the American Stock Exchange (AMEX)
and the Philadelphia Stock Exchange (PHLX) began trading in options in 1975.
The market for futures and options grew at a rapid pace in the eighties and nineties. The
collapse of the Bretton Woods regime of fixed parties and the introduction of floating
rates for currencies in the international financial markets paved the way for development
of a number of financial derivatives which served as effective risk management tools to
cope with market uncertainties.
The CBOT and the CME are two largest financial exchanges in the world on which
futures contracts are traded. The CBOT now offers 48 futures and option contracts (with
The most traded stock indices include S&P 500, the Dow Jones Industrial Average, the
Nasdaq 100, and the Nikkei 225. The US indices and the Nikkei 225 trade almost round
the clock. The N225 is also traded on the Chicago Mercantile Exchange.
Prices or exchange rates. The need for derivatives as hedging tool was felt first in the
commodities market. Agricultural futures and options helped farmers and processors
hedge against commodity price risk. After the fallout of Bretton wood agreement, the
financial markets in the world started undergoing radical changes. This period is marked
by remarkable innovations in the financial markets such as introduction of floating rates
for the currencies, increased trading in variety of derivatives instruments, on-line trading
in the capital markets, etc. As the complexity of instruments increased many folds, the
accompanying risk factors grew in gigantic proportions. This situation led to development
derivatives as effective risk management tools for the market participants.
Looking at the equity market, derivatives allow corporations and institutional investors to
effectively manage their portfolios of assets and liabilities through instruments like stock
index futures and options. An equity fund, for example, can reduce its exposure to the
stock
Market quickly and at a relatively low cost without selling off part of its equity assets by
using stock index futures or index options.
By providing investors and issuers with a wider array of tools for managing risks and
raising capital, derivatives improve the allocation of credit and the sharing of risk in the
global economy, lowering the cost of capital formation and stimulating economic growth.
Now that world markets for trade and finance have become more integrated, derivatives
High Liquidity in the The daily average traded volume in Indian capital market
underlying today is around 7500 crores. Which means on an average
every month 14% of the country’s Market capitalisation
gets traded. These are clear indicators of high liquidity in
the underlying.
Trade guarantee The first clearing corporation guaranteeing trades has
become fully functional from July 1996 in the form of
National Securities Clearing Corporation (NSCCL).
NSCCL is responsible for guaranteeing all open positions
on the National Stock Exchange (NSE) for which it does
the clearing.
A Strong Depository National Securities Depositories Limited (NSDL) which
started functioning in the year 1997 has revolutionalised
the security settlement in our country.
A Good legal guardian In the Institution of SEBI (Securities and Exchange Board
of India) today the Indian capital market enjoys a strong,
independent, and innovative legal guardian who is helping
the market to evolve to a healthier place for trade
practices.
Figure
Speculators
Advantages
• Greater Leverage as to pay only the premium.
• Greater variety of strike price options at a given time.
Figure
Arbitrageurs
Figure
Hedgers
Figure
Small Investors
Advantages
• Losses Protected.
The OTC derivatives markets have witnessed rather sharp growth over the last few years,
which has accompanied the modernization of commercial and investment banking and
globalisation of financial activities. The recent developments in information technology
have contributed to a great extent to these developments. While both exchange-traded and
OTC derivative contracts offer many benefits, the former have rigid structures compared
to the latter. It has been widely discussed that the highly leveraged institutions and their
OTC derivative positions were the main cause of turbulence in financial markets in 1998.
These episodes of turbulence revealed the risks posed to market stability originating in
features of OTC derivative instruments and markets.
The OTC derivatives markets have the following features compared to exchange-traded
derivatives:
1. The management of counter-party (credit) risk is decentralized and located within
individual institutions,
2. There are no formal centralized limits on individual positions, leverage, or margining,
3. There are no formal rules for risk and burden-sharing,
Some of the features of OTC derivatives markets embody risks to financial market
stability.
The following features of OTC derivatives markets can give rise to instability in
institutions, markets, and the international financial system: (i) the dynamic nature of
gross credit exposures; (ii) information asymmetries; (iii) the effects of OTC derivative
activities on available aggregate credit; (iv) the high concentration of OTC derivative
activities in major institutions; and (v) the central role of OTC derivatives markets in the
global financial system. Instability arises when shocks, such as counter-party credit events
and sharp movements in asset prices that underlie derivative contracts, occur which
significantly alter the perceptions of current and potential future credit exposures. When
asset prices change rapidly, the size and configuration of counter-party exposures can
become unsustainably large and provoke a rapid unwinding of positions.
There has been some progress in addressing these risks and perceptions. However, the
progress has been limited in implementing reforms in risk management, including
counter-party, liquidity and operational risks, and OTC derivatives markets continue to
pose a threat to international financial stability. The problem is more acute as heavy
reliance on OTC derivatives creates the possibility of systemic financial events, which fall
outside the more formal clearing house structures. Moreover, those who provide OTC
derivative products, hedge their risks through the use of exchange traded derivatives. In
view of the inherent risks associated with OTC derivatives, and their dependence on
exchange traded derivatives, Indian law considers them illegal.
Prices are generally determined by market forces. In a market, consumers have ‘demand’
and producers or suppliers have ‘supply’, and the collective interaction of demand and
supply in the market determines the price. These factors are constantly interacting in the
market causing changes in the price over a short period of time. Such changes in the price
are known as ‘price volatility’. This has three factors: the speed of price changes, the
frequency of price changes and the magnitude of price changes.
The changes in demand and supply influencing factors culminate in market adjustments
through price changes. These price changes expose individuals, producing firms and
governments to significant risks. The break down of the BRETTON WOODS agreement
brought and end to the stabilising role of fixed exchange rates and the gold convertibility
of the dollars. The globalisation of the markets and rapid industrialisation of many
underdeveloped countries brought a new scale and dimension to the markets. Nations that
were poor suddenly became a major source of supply of goods. The Mexican crisis in the
south east-Asian currency crisis of 1990’s has also brought the price volatility factor on
the surface. The advent of telecommunication and data processing bought information
very quickly to the markets. Information which would have taken months to impact the
market earlier can now be obtained in matter of moments. Even equity holders are
exposed to price risk of corporate share fluctuates rapidly.
In Indian context, south East Asian currencies crisis of 1997 had affected the
competitiveness of our products vis-à-vis depreciated currencies. Export of certain goods
from India declined because of this crisis. Steel industry in 1998 suffered its worst set
back due to cheap import of steel from south East Asian countries. Suddenly blue chip
companies had turned in to red. The fear of china devaluing its currency created
instability in Indian exports. Thus, it is evident that globalisation of industrial and
financial activities necessitates use of derivatives to guard against future losses. This
factor alone has contributed to the growth of derivatives to a significant extent.
BENEFITS OF DERIVATIVES
Derivative markets help investors in many different ways:
1.] RISK MANAGEMENT –
Futures and options contract can be used for altering the risk of investing in spot market.
For instance, consider an investor who owns an asset. He will always be worried that the
price may fall before he can sell the asset. He can protect himself by selling a futures
contract, or by buying a Put option. If the spot price falls, the short hedgers will gain in
the futures market, as you will see later. This will help offset their losses in the spot
The first step towards introduction of derivatives trading in India was the promulgation of
the Securities Laws (Amendment) Ordinance, 1995, which withdrew the prohibition on
options in securities. The market for derivatives, however, did not take off, as there was
no regulatory framework to govern trading of derivatives. SEBI set up a 24–member
committee under the Chairmanship of Dr.L.C.Gupta on November 18, 1996 to develop
appropriate regulatory framework for derivatives trading in India. The committee
submitted its report on March 17, 1998 prescribing necessary pre–conditions for
introduction of derivatives trading in India. The committee recommended that derivatives
should be declared as ‘securities’ so that regulatory framework applicable to trading of
‘securities’ could also govern trading of securities. SEBI also set up a group in June 1998
under the Chairmanship of Prof.J.R.Varma, to recommend measures for risk containment
in derivatives market in India. The report, which was submitted in October 1998, worked
out the operational details of margining system, methodology for charging initial margins,
broker net worth, deposit requirement and real–time monitoring requirements. The
Securities Contract Regulation Act (SCRA) was amended in December 1999 to include
derivatives within the ambit of ‘securities’ and the regulatory framework were developed
for governing derivatives trading. The act also made it clear that derivatives shall be legal
and valid only if such contracts are traded on a recognized stock exchange, thus
precluding OTC derivatives. The government also rescinded in March 2000, the three
decade old notification, which prohibited forward trading in securities. Derivatives
trading commenced in India in June 2000 after SEBI granted the final approval to this
effect in May 2001. SEBI permitted the derivative segments of two stock exchanges, NSE
and BSE, and their clearing house/corporation to commence trading and settlement in
approved derivatives contracts. To begin with, SEBI approved trading in index futures
contracts based on S&P CNX Nifty and BSE–30 (Sense) index. This was followed by
The trading in BSE Sensex options commenced on June 4, 2001 and the trading in options
on individual securities commenced in July 2001. Futures contracts on individual stocks
were launched in November 2001. The derivatives trading on NSE commenced with S&P
CNX Nifty Index futures on June 12, 2000. The trading in index options commenced on
June 4, 2001 and trading in options on individual securities commenced on July 2, 2001.
Single stock futures were launched on November 9, 2001. The index futures and options
contract on NSE are based on S&P CNX Trading and settlement in derivative contracts is
done in accordance with the rules, byelaws, and regulations of the respective exchanges
and their clearing house/corporation duly approved by SEBI and notified in the official
gazette. Foreign Institutional Investors (FIIs) are permitted to trade in all Exchange traded
derivative products.
The following are some observations based on the trading statistics provided in the NSE
report on the futures and options (F&O):
• On relative terms, volumes in the index options segment continue to remain poor.
This may be due to the low volatility of the spot index. Typically, options are considered
more valuable when the volatility of the underlying (in this case, the index) is high. A
related issue is that brokers do not earn high commissions by recommending index
options to their clients, because low volatility leads to higher waiting time for round-trips.
• Put volumes in the index options and equity options segment have increased since
January 2002. The call-put volumes in index options have decreased from 2.86 in January
• Farther month futures contracts are still not actively traded. Trading in equity
options on most stocks for even the next month was non-existent.
• Daily option price variations suggest that traders use the F&O segment as a less
risky alternative (read substitute) to generate profits from the stock price movements. The
fact that the option premiums tail intra-day stock prices is evidence to this. If calls and
puts are not looked as just substitutes for spot trading, the intra-day stock price variations
should not have a one-to-one impact on the option premiums.
• The spot foreign exchange market remains the most important segment but the
derivative segment has also grown. In the derivative market foreign exchange
swaps account for the largest share of the total turnover of derivatives in India
followed by forwards and options. Significant milestones in the development of
derivatives market have been (i) permission to banks to undertake cross currency
derivative transactions subject to certain conditions (1996) (ii) allowing corporates to
undertake long term foreign currency swaps that contributed to the development
of the term currency swap market (1997) (iii) allowing dollar rupee options (2003)
and (iv) introduction of currency futures (2008). I would like to emphasise that
currency swaps allowed companies with ECBs to swap their foreign currency
liabilities into rupees. However, since banks could not carry open positions the risk
was allowed to be transferred to any other resident corporate. Normally such risks
should be taken by corporates who have natural hedge or have potential foreign
exchange earnings. But often corporate assume these risks due to interest rate
differentials and views on currencies.
This period has also witnessed several relaxations in regulations relating to forex
markets and also greater liberalisation in capital account regulations leading to
greater integration with the global economy.
National Exchanges
In enhancing the institutional capabilities for futures trading the idea of setting up
of National Commodity Exchange(s) has been pursued since 1999. Three such
Exchanges, viz, National Multi-Commodity Exchange of India Ltd., (NMCE),
Ahmedabad, National Commodity & Derivatives Exchange (NCDEX), Mumbai, and
Multi Commodity Exchange (MCX), Mumbai have become operational. “National
Status” implies that these exchanges would be automatically permitted to conduct futures
trading in all commodities subject to clearance of byelaws and contract specifications by
the FMC. While the NMCE, Ahmedabad commenced futures trading in November 2002,
MCX and NCDEX, Mumbai commenced operations in October/ December 2003
respectively.
MCX
MCX (Multi Commodity Exchange of India Ltd.) an independent and de-
mutualised multi commodity exchange has permanent recognition from Government of
India for facilitating online trading, clearing and settlement operations for commodity
futures markets across the country. Key shareholders of MCX are Financial Technologies
(India) Ltd., State Bank of India, HDFC Bank, State Bank of Indore, State Bank of
Hyderabad, State Bank of Saurashtra, SBI Life Insurance Co. Ltd., Union Bank of India,
NMCE
National Multi Commodity Exchange of India Ltd. (NMCE) was promoted by
Central Warehousing Corporation (CWC), National Agricultural Cooperative Marketing
Federation of India (NAFED), Gujarat Agro-Industries Corporation Limited (GAICL),
Gujarat State Agricultural Marketing Board (GSAMB), National Institute of Agricultural
Marketing (NIAM), and Neptune Overseas Limited (NOL). While various integral
aspects of commodity economy, viz., warehousing, cooperatives, private and public sector
marketing of agricultural commodities, research and training were adequately addressed
in structuring the Exchange, finance was still a vital missing link. Punjab National Bank
(PNB) took equity of the Exchange to establish that linkage. Even today, NMCE is the
only Exchange in India to have such investment and technical support from the
commodity relevant institutions.
NMCE facilitates electronic derivatives trading through robust and tested trading
platform, Derivative Trading Settlement System (DTSS), provided by CMC. It has robust
delivery mechanism making it the most suitable for the participants in the physical
NCDEX
National Commodity and Derivatives Exchange Ltd (NCDEX) is a technology driven
commodity exchange. It is a public limited company registered under the Companies Act,
1956 with the Registrar of Companies, Maharashtra in Mumbai on April 23,2003. It has
an independent Board of Directors and professionals not having any vested interest in
commodity markets. It has been launched to provide a world-class commodity exchange
platform for market participants to trade in a wide spectrum of commodity derivatives
driven by best global practices, professionalism and transparency.
After collecting the Secondary data the next phase will be collection of primary data
using Questionnaires. The questionnaire will be filled by around 100 people who will be
mainly from Ahmedabad. The sample will consist of people who are employed or work as
free lancers dealing in derivative market to know their perception towards investment in
derivative market. The data collected will be then entered into MS Excel for analysis of
the data collected from the questionnaire.
RESEARCH DESIGN
Non probability
The non –probability respondents have been researched by selecting the persons who
do the trading in derivative market. Those persons who do not trade in derivative market
have not been interviewed.
Descriptive research
The research is descriptive in nature. The sources of information are both primary and
secondary. The secondary data has been taken by referring to various magazines,
newspapers, internal sources and internet to get the figures required for the research
purposes. The objective of the research is to gain insights and ideas. A well structured
questionnaire was prepared for the primary research to collect the responses of the target
population.
SAMPLING METHODOLOGY
The methodology used in our project was convenient sampling.
Sampling Unit
Sample Size
The sample size was restricted to only 100 respondents.
Sampling Area
The area of the research was Ahmedabad.
Time:
2 months
Participation as No. of
Result
investor 46
Speculator 4
Broker/Dealer 16
Hedger 34
Q.9 From where you prefer to take advice before investing in derivative market?
Q.12 What is best describes the overall approach to invest as a mean of achieving
investors goals.
OPTIONS NO. of
Result
Relative level of stability in overall investment portfolio 34
Increasing investment value while minimizing potential for loss of principal 38
Investment growth with moderate high levels of risk 8
Maximum long term returns with high risk 20
• A knowledge need to be spread concerning the risk and return of the derivative
market.
• More variation in stock index future need to be made looking a demand side of
investors.
• SEBI should conduct seminars regarding the use of derivatives to educate individual
investors.
1. LIMITED TIME:
The time available to conduct the study was only 2 months. It being a wide topic
had a limited time.
2. LIMITED RESOURCES:
Limited resources were available to collect the information about the commodity
trading
3. VOLATALITY:
Share market is so much volatile and it is difficult to forecast anything about it
whether you trade through online or offline
4. ASPECTS COVERAGE:
Some of the aspects may not be covered in my study.
Most of the investors who invest in derivatives market are post graduate.
Investors who invest in derivative market have a income of above 5,00,000
Investors generally perceive slump in stock market kind of risk while investing in
derivative market.
People are generally not investing in derivative market due to lack of knowledge
and difficulty in understanding and it is very risky also.
Most of investor purpose of investing in derivative market is to hedge their fund.
People generally participate in derivative market as a investor or hedger.
People generally prefer to take advice from news network before investing in
derivative market.
Most of investors participate in stock index futures.
From this survey we come to know that most of investors make a contract of 3
month maturity period.
Investors invest regularly in derivative market.
The result of investment in derivative market is generally moderate but acceptable.
Books referred:
Options Futures, and other Derivatives by John C Hull
Derivatives FAQ by Ajay Shah
NSE’s Certification in Financial Markets: - Derivatives Core module
Financial Markets & Services by Gordon & Natarajan
Reports:
Report of the RBI-SEBI standard technical committee on exchange traded Currency
Futures
Regulatory Framework for Financial Derivatives in India by Dr.L.C.GUPTA
Websites visited:
www.nse-india.com
www.bseindia.com
www.sebi.gov.in
www.ncdex.com
www.google.com
www.derivativesindia.com
2. Income Range:
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Below 1,50,000
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect 1,50,000 – 3,00,000
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect 3,00,000 – 5,00,000
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Above 5,00,000
3. Normally what percentage of your monthly household income could be available for
investment?
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Between 5% to 10%
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Between 11% to 15%
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Between 16% to 20%
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Between 21% to 25%
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect More than 25%
4. What is your primary investment purpose?
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Retirement Planning
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Building up a corpus for
charity donations
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Supporting future
education of your children
6. Why people do not invest in derivative market? (Rank your preference 1-4)
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Lack of knowledge and
difficulty in understanding
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Increase speculation
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Very risky and highly
leveraged instrument
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Counter party risk
9. From where you prefer to take advice before investing in derivative market?
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Brokerage houses
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Research analyst
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Websites
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect News Networks
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Other (Specify)
_________________
11. Which of the following statements best describes your overall approach to invest as a
mean of achieving your goals?
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Having a relative level of
stability in my overall investment portfolio.
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Moderately increasing my
investment value while minimizing potential for loss of
principal.
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Pursue investment growth,
accepting moderate to high levels of risk and
principal fluctuation.
<INPUT TYPE=\ RADIO > MACROBUTTON HTMLDirect Seek maximum long-term
returns, accepting maximum risk with principal
fluctuation.
M
MCX – Multi Commodity Exchange
N
NAFED-National Agricultural Co-Operative Marketing Federation Of India
NCDEX – National Commodities and Derivatives Exchange
NIAM- National Institute Of Agricultural Marketing
NMSE- National Multi Commodity Exchange
NOL- Neptune Overseas Limited
NSCCL- National Securities Clearing Corporation
NSDL- National Securities Depositories Limited
NSE - National Stock Exchange
O
OTC- Over The Counter
P
PHLX - Philadelphia Stock Exchange
PNB- Punjab National Bank
R
RBI- Reserve Bank Of India
S
SC(R) A - Securities Contracts (Regulation) Act, 1956