Derivatives

24-03-2025

06:31 AM

1 min read

Derivatives Latest News

IndusInd Bank reported derivative losses of ₹2,100 crore on March 10, 2025, leading to a 23% decline in its share price.

About Derivatives

Financial contracts whose value depends on an underlying asset, index, or rate.
Used for hedging risks, speculation, and portfolio diversification.
Common underlying assets: Stocks, bonds, commodities, currencies, interest rates, and market indexes.

Types of Derivatives

Derivative Type	Definition	Example
Futures	Contract to buy/sell an asset at a fixed price on a future date.	Commodity traders hedging against price fluctuations.
Options	Gives the right (but not obligation) to buy (call) or sell (put) an asset at a set price before a deadline.	Stock options in equity markets.
Swaps	Agreements to exchange cash flows based on financial metrics.	Interest rate swaps to reduce borrowing costs.
Forwards	Private agreements (OTC) to buy/sell assets at a future date.	Currency forward contracts for importers/exporters.

Exchange-Traded Currency Derivatives (ETCDs)

Standardized contracts allow investors to speculate on future currency exchange rate movements.
Traded on stock exchanges, unlike Over-the-Counter (OTC) derivatives which are private.

Derivatives FAQs

Q1: What are derivatives in the financial market?

Ans: Derivatives are financial contracts whose value is derived from an underlying asset such as stocks, commodities, currencies, or interest rates.

Q2: Why are derivatives important?

Ans: Derivatives help in risk management (hedging), price discovery, and improving market efficiency.

Q3: What are the risks associated with derivatives?

Ans: Derivatives carry risks such as market volatility, counterparty default, and speculative losses.

Q4: What is the role of SEBI in regulating derivatives in India?

Ans: SEBI (Securities and Exchange Board of India) regulates derivatives trading in stock and commodity exchanges to ensure transparency and reduce market manipulation.

Source: IE