{"id":61851,"date":"2025-09-03T15:26:02","date_gmt":"2025-09-03T09:56:02","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=61851"},"modified":"2025-09-03T15:45:02","modified_gmt":"2025-09-03T10:15:02","slug":"equity-derivatives","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/equity-derivatives\/","title":{"rendered":"Equity Derivatives"},"content":{"rendered":"<h2><b>Equity Derivatives Latest News<\/b><\/h2>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">SEBI has come out with a new framework for monitoring intraday positions in equity index derivatives, a move aimed at preventing risks caused by large exposures.<\/span><\/p>\n<h2><b>What are Derivatives?<\/b><\/h2>\n<ul>\n<li style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Derivatives are <\/span><b>financial contracts<\/b><span style=\"font-weight: 400;\"> that <\/span><b>derive value from an underlying asset.\u00a0<\/b><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Derivatives<\/span><b> allow traders to bid on the direction of the underlying asset\u2019s price change without owning them.\u00a0<\/b><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-weight: 400;\">They allow investors to speculate on price movements,<\/span><b> hedge against risks,<\/b><span style=\"font-weight: 400;\"> or enhance portfolio returns.<\/span><\/li>\n<\/ul>\n<h2><b>About Equity Derivatives<\/b><\/h2>\n<ul>\n<li style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Equity derivatives are <\/span><b>financial instruments<\/b><span style=\"font-weight: 400;\"> whose <\/span><b>value is derived from the movements of a stock or a stock index.\u00a0<\/b><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Equity derivatives serve various purposes for investors and traders, including <\/span><b>risk management, speculation, and portfolio optimisation.<\/b><\/li>\n<\/ul>\n<h2><strong>Equity Derivative Types<\/strong><\/h2>\n<ul>\n<li style=\"text-align: justify;\"><b>Futures Contracts:<\/b><span style=\"font-weight: 400;\"> These<\/span><b> obligate the buyer to purchase and the seller to sell<\/b><span style=\"font-weight: 400;\"> an underlying <\/span><b>equity asset <\/b><span style=\"font-weight: 400;\">at a <\/span><b>predetermined price and future date.\u00a0 <\/b><span style=\"font-weight: 400;\">Equity index futures, like the BSE S&amp;P and Nifty IT, are popular examples.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Options:<\/b><span style=\"font-weight: 400;\"> Equity options <\/span><b>give the holder the right, but not the obligation, to buy (call option) or sell (put option)<\/b><span style=\"font-weight: 400;\"> an underlying stock or index at a specified price before or on a specific expiration date.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Swaps: <\/b><span style=\"font-weight: 400;\">Equity swaps involve <\/span><b>exchanging cash flows based on the return <\/b><span style=\"font-weight: 400;\">of an underlying equity asset. These can be<\/span><b> used for hedging or investment purposes<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Forwards: <\/b><span style=\"font-weight: 400;\">Forwards are the <\/span><b>same as futures<\/b><span style=\"font-weight: 400;\">, where the<\/span><b> parties are obligated to perform the contract.<\/b><span style=\"font-weight: 400;\"> But forwards are <\/span><b>non-standardised, over-the-counter contracts <\/b><span style=\"font-weight: 400;\">that <\/span><b>don\u2019t trade on the stock exchanges.<\/b><\/li>\n<\/ul>\n<h2><b>Advantages of Equity Derivatives<\/b><\/h2>\n<ul>\n<li style=\"text-align: justify;\"><b>Leverage<\/b><span style=\"font-weight: 400;\">: Equity derivatives typically require a smaller upfront investment compared to buying the underlying assets directly.This\u00a0 allow investors to control a larger position in the underlying asset with a smaller investment, magnifying potential gains (but also losses).<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Hedging against price volatility:<\/b><span style=\"font-weight: 400;\"> They provide a means to protect against adverse price movements in the stock market, reducing the risk of financial losses.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Access to premium assets:<\/b><span style=\"font-weight: 400;\"> By investing in these derivatives, investors can gain exposure to high-value, unaffordable or inaccessible assets.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Cost efficiency:<\/b><span style=\"font-weight: 400;\"> Trading equity derivatives typically requires lower transaction costs than directly investing in the underlying assets, making it a cost-effective choice.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Arbitrage opportunities:<\/b><span style=\"font-weight: 400;\"> They can be utilised to exploit price discrepancies between different markets, enabling investors to profit from market inefficiencies.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Portfolio diversification: <\/b><span style=\"font-weight: 400;\">Including these derivatives in an investment portfolio can diversify risk by adding different asset classes and strategies.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Flexibility: <\/b><span style=\"font-weight: 400;\">They offer various strategies and contract types, allowing investors to adapt their positions based on market conditions and investment objectives.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Liquidity:<\/b><span style=\"font-weight: 400;\"> The derivatives market tends to have high liquidity, ensuring ease of buying and selling positions without significant market impact.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Risk management:<\/b><span style=\"font-weight: 400;\"> They provide tools for managing risk exposure, allowing investors to mitigate losses and protect their portfolios.<\/span><\/li>\n<li style=\"text-align: justify;\"><b>Income generation:<\/b><span style=\"font-weight: 400;\"> Through option writing or other derivative strategies, investors can generate income from their equity positions, enhancing overall returns.<\/span><\/li>\n<\/ul>\n<p><b>Source<\/b><span style=\"font-weight: 400;\">: <\/span><a href=\"https:\/\/epaper.thehindu.com\/ccidist-ws\/th\/th_delhi\/issues\/146562\/OPS\/GL7ERK6GI.1+GDEERLTOC.1.html\" target=\"_blank\" rel=\"nofollow noopener\"><span style=\"font-weight: 400;\">TH<\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Equity Derivatives are financial instruments whose value is derived from the movements of a stock or a stock index. Read more about Equity Derivatives, Definition, Types, Advantages, Latest News<\/p>\n","protected":false},"author":23,"featured_media":61870,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[2486,21,22,23],"class_list":{"0":"post-61851","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-prelims-current-affairs","8":"tag-equity-derivatives","9":"tag-prelims-pointers","10":"tag-upsc-current-affairs","11":"tag-upsc-prelims-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/61851","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/23"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=61851"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/61851\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/61870"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=61851"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=61851"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=61851"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}