Derivative market has seen a tremendous growth in day trading, as the market is much less risky as compared to equity and other modes of investing. Arbitrage is one of the most playful things in the hands of investors.
There are derivative courses online available today to help the new ones get ready for trading in future and options trading.
What is Derivative?
To start understanding the stock trading, you will first have to understand what derivative is. Well, it is a security that has dependent price upon underlying assets. These underlying assets could be derived from other assets. The derivative itself is a contract between two or more parties based upon the underlying asset or assets. Some of the examples of most common underlying assets are stocks, currencies, bonds, interest rates, commodities, and market indexes.
How to understand the derivative market concept?
- Let us see an example to understand the concept of derivative, let’s assume that in April 2017 the farmer enters a futures contract with a Miller to sell 5,000 bushels of wheat at $4.404 per bushel in July.
- If the market price of wheat falls to $4.350 on the date of expiry i.e. July 2017, the Miller has to buy at the contract price of $4.404, which is much higher than the market price of $4.350.
- Now he’ll not pay 4.350 x 5000 = $21,750, rather he’ll pay 4.404 x 5000 = $22,020. Now the farmer gets to sell at a higher price than what the market is offering.
What are the benefits of trading in derivatives market as compared to other segments?
- Highly Liquid – The most liquid market in the world is said to be the foreign exchange market. Traders have the ability to enter and exit the market whenever they want without worrying about the market conditions.
- Fixed Lot Size – A lot size means the number of currency units per lot. The biggest advantage to this is that traders who participate in these contracts can trade multiple lots per contract.
- No Manipulation – Due to the giant size of the market and numerous players involved, it’s impossible to manipulate the market. Forget a single entity, even centralized banks with their high-volume of transactions can’t make any favoured altercations.
- Arbitrage – You can make money hand over fist by taking advantage of the currency exchange rates in different markets and exchanges.
- Leverage of purchasing– You can just pay a percentage of the value while trading currency derivatives instead of the full traded value. The percentage value is called the margin amount.
- Speculation – Using currency futures you can speculate short-term movement in the markets. For example. If you have a hunch that oil prices are going to surge and impact India’s import bill, then you would buy USD expecting that INR would depreciate.
How to find the best online course?
Many companies are providing online courses on derivatives to get through with a thorough knowledge of the Derivative market and how to invest in this segment online.Online derivative courses are just meant to provide a person with basic knowledge of the derivative market as this segment encompasses a huge variety of methods and techniques to trade in. One must always look for the best online derivative course mostly provided by the current stockbrokers.