The concept of derivatives is not a new one. In India, derivative instruments are making their way into the Indian financial markets. The market participants now have an access to a host of instruments such as stock futures, index futures, interest rate futures, stock options etc. These instruments can be used by the market participants to hedge their various exposures. It has been observed in the Indian capital markets that the volumes in the derivatives segment are more than those that in the cash segment. In the month of January 2004, the turnover in the derivatives segment was 241% more than that of the cash segment. But unfortunately, trading in the interest rate futures had a lackluster time soon after their launch on the National Stock Exchange (NSE). As of now, the trading in the interest rate futures is zero since Spetember'03. Read on to find the possible reasons.
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."Indian capital markets are now witnessing the era of financial futures. Futures are nothing but one of the dimensions of the multitude of innovative instruments from the world of financial engineering. Futures is a contract that derives its value from an underlying asset. This underlying asset can be equity, index, currencies, commodities and interest rates.
Index futures are slightly different in the sense that their value is derived from a group of securities that constitute the index. Trading in index futures means taking into consideration that index will perform in the coming future. Before taking any position in the futures, it is necessary to learn a few concepts for a better understanding of the futures. First, any change in the price of any underlying results in a corresponding change in the index.
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