Impact of derivatives trading in the Indian Securities Market

The global liberalization and integration of financial markets has created new investment opportunities, which in turn require the development of new instruments that are more efficient to deal with the increased risks. Institutional investors who are actively engaged in industrial and emerging markets need to hedge their risks from these internal as well as cross-border transactions.

Agents in liberalized market economies who are exposed to volatile commodity price and interest rate changes require appropriate hedging products to deal with them. and the economic expansion in emerging economies demands that corporations find better ways to manage financial and commodity risks.

The most desired instruments that allow market participants to manage risk in the modern securities trading are known as Derivatives. The main logic behind the derivatives trading is that derivatives reduce the risk by providing an additional channel to invest with lower trading cost and it facilitates the investors to extend their settlement through the future contracts. It provides extra liquidity in the stock market and Trading in lots. They represent contracts whose payoff at expiration is determined by the price of the underlying asset— a currency, an interest rate, a commodity, or a stock.