Frequently Asked Questions (FAQ)

Derivatives are unique financial instruments that derive their value from the value of an underlying asset. There are two primary derivative instruments that you can trade in the Indian stock market - futures and options. Investors often use derivatives to hedge their investment risk in an underlying asset. However, trading in derivatives is also a good way to generate profits through price speculation.

As far as derivative contracts are concerned, there are four different types - forward contracts, futures contracts, options contracts and swaps. In India, however, the most commonly traded derivative contracts are futures and options.

The primary participants of the derivative market include retail traders, large institutional traders, stockbrokers, clearinghouses and stock exchanges.

The margin requirements for derivative contracts are dependent on a multitude of different factors. The underlying asset, its current market value, lot size, number of lots, type of trade, implied market volatility and time until contract expiry are a few of the factors that determine the amount of margin you need to deposit to trade in a derivative contract.

Some of the common types of futures contracts that are available for trade include equity futures, index futures, interest rate futures, currency futures, commodity futures, and volatility futures.

Both forward contracts and futures contracts have the same objective - to purchase or sell an asset at a specific price on a particular future date. Despite their common objective, there are a few crucial differences between these two contracts.

Firstly, forward contracts are usually entered into by two or more parties who are acquainted with each other. In future contracts, however, there are only two parties whose identities are often unknown to each other. Secondly, future contracts are traded on exchanges, whereas forward contracts are not. And finally, future contracts are standardized and heavily regulated by multiple participants, whereas forward contracts are customized and unregulated.

The trading hours for the equity and index derivative markets start at 9.15 AM and come to a close at 3.30 PM.

The trading hours for the currency and interest rate derivative market, however, start at 9.00 AM and close at 5.00 PM.

As for the commodity derivative market, the trading hours start at 9.00 AM and close at 11.30 PM.