FINOSUTRA

Trading System. what is trading system.. In this chapter we shall take a brief look at the trading system of futures and options on  exchanges, including various types of orders. However, the best way to develop an  understanding of the trading system is to actually watch the screen and observe trading.  As stated earlier, futures and options are standardized contracts and like shares, they  are traded on exchanges. Paper Trading   Markets around the world can be classified into two main  types based on the methods of booking a trade namely an “open outcry” marke t and  the  “electronic”  market.   Open  outcry  is  the  way  of  communication  between  professionals on an exchange, which involves shouting, or using hand signals to transfer  information about buy and sell orders. In an open outcry markets, usually the trading  takes place in a large hall known as “pit” where members are present and contracts are  traded through continuous bids and offers. Thus, such a ma

Option contract.... What are option contract /  Call and Put Options Definitions and Examples. Option contract.                           Option is a contract that gives the right, but not an obligation, to buy or sell the  underlying asset on or before a stated date/day, at a stated price, for a price. The party  taking a long position i.e. buying the option is called buyer/ holder of the option and the  party taking a short position i.e. selling the option is called the seller/ writer of the  option.  The option buyer has the right but no obligation with regards to buying or selling the  underlying asset, while the option writer has the obligation in the contract. Therefore,  option buyer/ holder will exercise his option only when the situation is favourable to  him, but, when he decides to exercise, option  writer would be legally bound to honour  the contract.     Option, which gives buyer a right to buy the underlying asset, is called Call option and  the option which

Future contract !!!!!!!!!!!!!!!!!! What are future contract Derivative. Futures markets were innovated to overcome the limitations of forwards. A futures  contract is an agreement made through an organized exchange to buy or sell a fixed  amount of a commodity or a financial asset on a future date at an agreed price. Simply,  futures  are  standardised  forward  contracts  that  are  traded  on  an  exchange.  The  clearinghouse associated with the exchange guarantees settlement of these trades. A  trader, who buys futures contract, takes a long position and the one, who sells futures,  takes a short position. The words buy and sell are figurative only because no money or  underlying asset changes hand, between buyer and seller, when the deal is signed Future Contract. It is important to understand what actually futures prices indicate?  If we say  May 2020 index futures contract is trading today (in March 2020 ) at 10200, what does it  mean. We can explain

                      Forward contract  Forward contract. Forward contract is an agreement made directly between two parties to buy or sell an  asset on a specific date in the future, at the terms decided today. Forwards are widely  used in commodities, foreign exchange, equity and interest rate markets.  Let us understand with the help of an example.  Assume on May 9, 2020 you wanted to purchase gold  from a goldsmith. The market price for gold on May 9, 2020 was Rs. 30,425 for 10  gram and goldsmith agrees to sell you gold at market price. You paid him Rs. 30,425 for  10 gram of gold and took gold. This is a cash market transaction at a price (in this case  Rs. 30,425) referred to as spot price.  Now suppose you do not want to buy gold on May 9, 2020, but only after 1 month.  Goldsmith quotes you Rs. 30,450 for 10 grams of gold. You agree to the forward price  for 10 grams of gold and go away. Here, in this example, you have bought forward or  you are long forward, wher

Introduction to Index What is index Derivatives.   Index is a statistical indicator that measures changes in the economy in general or in  particular areas. In case of financial markets, an index is a portfolio of securities that  represent  a  particular  market  or  a  portion  of  a  market.  Each  Index  has  its  own  calculation methodology and usually is expressed in terms of a change from a base  value. The base value might be as recent as the previous day or many years in the past.  Thus, the percentage change is more important than the actual numeric value.  Financial  indices are created to measure price movement of stocks, bonds, T‐bills and other type  of financial securities. More specifically, a stock index is created to provide market  participants  with  the  information  regarding  average  share  price  movement  in  the  market. Broad indices are expected to capture the overall behaviour of equity market  and need to represent the return obtained by typica

  Various risks faced by the participants in derivatives  What are Various risks and Significance of Derivatives Markets. Market Participants must understand that derivatives, being leveraged instruments,  have risks like counterparty risk (default by counterparty), price risk (loss on position  because  of  price  move),  liquidity  risk  (inability  to  exit  from  a  position),  legal  or  regulatory  risk  (enforceability  of  contracts),  operational  risk  (fraud,  inadequate  documentation, improper execution, etc.) and may not be an appropriate avenue for  someone of limited resources, trading experience and low risk tolerance.  A market  participant should therefore carefully consider whether such trading is suitable for  him/her based on these parameters. Market participants, who trade in derivatives are  advised to carefully read the Model Risk Disclosure Document, given by the broker to his  clients at the time of signing agreement.   Model Risk Disclosure Do

Derivatives. In the modern world, there is a huge variety of derivative products available. They are  either traded on organised exchanges (called exchange traded derivatives) or agreed  directly  between  the  contracting  counterparties  over  the  telephone  or  through  electronic media (called Over‐the‐counter (OTC) derivatives).  Few complex products are  constructed on simple building blocks like forwards, futures, options and swaps to cater  to the specific requirements of customers.   Over‐the‐counter market is not a physical marketplace but a collection of broker‐dealers  scattered across the country. Main idea of the market is more a way of doing business  than a place. Buying and selling of contracts is matched through negotiated bidding  process  over  a  network  of  telephone  or  electronic  media  that  link  thousands  of  intermediaries. OTC derivative markets have witnessed a substantial growth over the  past few years, very much contributed by the rec

  Participants in Derivatives Market What are  Market Participants in derivative market. There are broadly three types of participants in the derivatives market ‐ hedgers, traders  (also called speculators) and arbitrageurs. An individual may play different roles in  different market circumstances.    Hedgers  They face risk associated with the prices of underlying assets and use derivatives to  reduce  their  risk.  Corporations,  investing  institutions  and  banks  all  use  derivative  products to hedge or reduce their exposures to market variables such as interest rates,  share values, bond prices, currency exchange rates and commodity prices.     Speculators/Traders   They try to predict the future movements in prices of underlying assets and based on  the  view,  take  positions  in  derivative  contracts.  Derivatives  are  preferred  over  underlying asset for trading purpose, as they offer leverage, are less expensive and are faster to execute in  siz

Indian Derivatives Market /  What is Derivative Trading - Futures & Options Trading What is derivative market /  About Trading Derivatives Markets Globally  Over the last four decades, derivatives market has seen a phenomenal growth. Many  derivative contracts were launched at exchanges across the world. Some of the factors  driving the growth of financial derivatives are:Increased fluctuations in underlying asset prices in financial markets. Integration of financial markets globally. Use of latest  technology in  communications  has  helped  in  reduction  of  transaction costs.  Enhanced  understanding  of  market  participants  on  sophisticated  risk  management tools to manage risk.  Frequent innovations in derivatives market and newer applications of products. Products in Derivatives Market   Forwards   It is a contractual agreement between two parties to buy/sell an underlying asset at a  certain future date for a particular price that is pre‐decided on t

  Financial market : A market is define as a place where any type of trade take place with the major depedent of two participants- buyer and sellers. This market vary in form,scale,location,type of participant and as well as the type of good and services taded hence there is non exhaustive list of market. Classification of financial market. 1) Money market 2) Capital market. 1 Money market    The money market is the market for financial assets which are the close substitude for money. It is a market for short term debt instrument that have a maturity period of less than or up to one year. It include treasury bills, commercial paper, banker acceptance, certificate of deposit. 2 capital market     Capital market is a market for long term securities such as equity and debt. This market aims at raising capital on long term basis for a period over one year. it act as a platformwhere the public and private sectors often sell there stakes to raise fund.