The Derivatives market in India has been gaining significance since its inception in 2000. You can learn a lot about Derivatives like how to invest in this market. But before that, let’s discuss what the term “Derivative” means.
A Derivative is a financial contract that takes place between two parties. There are four types of Derivatives, i.e., Forward, Swap, Futures, and Options. These types of derivatives can have underlying assets such as Interest rate, Commodity, Equity, Property, etc.
For an Equity derivative investment, you need to understand that the value of a share is dependent on the value of the company in the market. The value of a Commodity derivative investment depends upon the underlying asset’s value in the market.
Suppose the price of sugarcane rises, then the derivative contract will also rise, or vice versa.
Now that you understand the basic relationship between the Derivatives and the underlying assets, you can move towards what is required to invest in the Derivatives market.
A Derivative investment is a cup of tea for those investors who have a thorough understanding of the market and can deal with associated risk factors.
Things Required to Invest in the Derivatives Market:
- Understand the fluctuations in the Derivatives market and keep in mind that the strategies for Derivatives investments are different from those in the Stock market; hence make your strategy accordingly.
- Investors must have a margin amount to invest in a Derivative contract. They cannot withdraw the margin amount if there is no settlement of the investment. They will also have to refill the margin amount if it falls below the minimum level.
- Open a Demat account linked to your Trading account with a Stockbroker who allows you to invest in Derivatives.
- Before investing, ensure that the margin requirement and the Derivative contract’s price fit well with your current budget. If it exceeds your budget, then search for the one that fits it because they are the initial requirements.
If you are a new investor, you must consider the above points before starting your investment in the Derivatives market. You can consider Kotak Securities as a platform to participate in the market of Derivatives. They are a trusted platform for investors, and it has huge goodwill among the investors in India. They have been in the financial industry, offering financial solutions to investors and traders for 20 years.