Are you a beginner investing in stock markets ?
- Read on to understand how equity derivatives can get you high yields.
- Risks are proportionately high as the returns you could get from equity derivatives.
- Dive deep to understand the facts and tips to get desired results.
Equity Derivatives
- Leverage the derivatives and options offered by the stock exchanges to invest in more stocks than buying them paying full money
- Instead of buying 100 shares or equities of a company, you can buy more by paying only part of its value and this is equity derivative investments.
Why buy equity derivatives?
- To buy 300 equities in Infosys, you must have Rs. 4,50,000. It is because the current price of Infosys equity is around Rs. 1,500.
- Though paying in cash and holding the shares in the DP or depository account is safe, shedding out such massive amounts is only possible for some people. It is one of the significant reasons that exchanges have introduced equity derivatives in the last two decades. You buy the market lot of 300 Infosys by paying only 10 to 40% of the total costs of its equities.
- By buying equity derivatives, you can reap more returns with fewer investments.
Equity Derivative: Definition, How They're Used, and Example
Want to safely trade your equity derivatives ?
What are Equity Derivatives ?
1
Know Financial Instruments
Before buying equity derivatives to make more money, it is vital for you also to know what it is not to lose hard-earned money. Derivatives are one of the three primary financial instruments; the other is equity and debt like bonds, mortgages, etc
2
Derivatives
It is a contract to derive its value from the performance of an underlying entity. It can be an index, equity, interest rate, asset, or others that can act as insurance policies for hedging price movements. It has many purposes, like exposure to price movements for speculation trading and access to high-value stock.
3
Cost of the Equity Derivatives
If you buy Infosys - one market lot, which is 400 equity derivatives, its price movements change as per the rise or fall in its equity price. The cost of the equity derivatives could be more or less than equity which in itself is dependent on many factors like the settlement date, equity value, and others.
4
Forms of Equity Derivatives
Many equity derivatives include equity swaps, single stock futures, warrants, and others. The most noteworthy is the equity futures and most traded options in the exchanges.
5
Equity Futures
Equity futures are contracts you can buy or sell at specified times and prices. It is the anticipation of the underlying share performing well and rising in price. In NSE or national stock exchange, you can buy one market lot, which differs as per the equity price for the current month or the next few months.
6
Selling Equity Futures
You can sell equity futures expecting it to fall within the current or next month, as closing the contract by the end of the settlement is essential. For equity futures, the monthly settlement is the last thursday of the month to square off.
7
Opportunity for Unlimited Profits
Equity options are far less than buying equity and equity futures and could lose the cost or get massive profits. It is one of the most traded in the exchanges as many speculators buy them to make unlimited profits.
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