Types of Indian Stock Markets | Equity and Derivative Market (2024)

FAQs

What are the types of derivatives market in India? ›

India has two types of derivative markets: the exchanges-traded market and the over-the-counter (OTC) market. The exchanges-traded market is where standardised contracts are traded on an exchange. The OTC market is decentralised, where contracts are negotiated directly between two parties.

In India, the stock market can be broadly classified into two types: the equity market and the derivatives market. Both markets enable the buying and selling of financial instruments.

Common derivatives include futures contracts, forwards, options, and swaps.

The Indian financial market is made up of a variety of markets, including the stock market, the bond market, the derivatives market, the foreign exchange market, and the money market.

Five of the more popular derivatives are options, single stock futures, warrants, a contract for difference, and index return swaps. Options let investors hedge risk or speculate by taking on more risk. A stock warrant means the holder has the right to buy the stock at a certain price at an agreed-upon date.

Furthermore, ETDs such as futures and options have grown, making the National Stock Exchange of India the world's largest derivatives exchange. ETDs are controlled and supervised by the exchanges and further regulated by SEBI.

Swing Trading

Unlike positional traders, swing traders do not shy away from volatility. Instead, they consider volatility as their best friend. In fact, the more volatile a stock, the better are the income opportunities for swing traders.

NSE. The National Stock Exchange (NSE) is the largest stock exchange in India. In terms of market capitalisation, it is also the eleventh-largest stock exchange in the world.

The Indian stock market is divided into 11(eleven) sectors, including Banking, Information Technology (IT), Pharmaceuticals, Automobile, Banks & Financial Services, and Fast-Moving Consumer Goods (FMCG), among others.

You are expected to deposit the initial margin upfront. How much you have to deposit is decided by the stock exchange as per the volatility of particular derivatives contract. The exposure margin is used to control volatility and excessive speculation in the derivatives markets.

Which derivative is not traded on the Indian stock market? ›

There are mainly four types of derivative contracts such as futures, forwards, options & swaps. However, Swaps are complex instruments that are not traded in the Indian stock market.

Importance of derivatives market

Risk transfer: Derivatives facilitate the transfer of risk from one party to another, allowing market participants to manage their exposure to various types of risks, including price, interest rate, and currency risks.

Options are derivative contracts that grant the buyer the right, but not the obligation, to either buy or sell a sum of some underlying asset at or before the contract expires at a fixed price.

Commodity derivatives trading involves trading of standardised derivative (futures and options) contracts of agricultural and non-agricultural commodities on the electronic platform of recognised stock exchanges, subject to approval of SEBI and extant regulations and laws governing the commodity derivatives market.

Capital markets structure is made of primary and secondary markets. Primary markets consist of companies that issue securities and investors who purchase those securities directly from the issuing company. These securities are called Initial Public Offerings (IPO).

The most common derivatives trading instruments in India are futures and options. While futures provide you with the right and obligation to buy or sell the underlying asset at a future date, options give you the right, not the obligation, to buy or sell the underlying asset at a future date.

A derivative is a formal financial contract that allows an investor to buy and sell an asset for a future date. The expiry date of a derivative contract is fixed and predetermined. Derivative trading in the share market is better than buying the underlying asset since the gains can be substantially inflated.

The notional volume of equity derivative trading in India reached $6 trillion in early February, a six-fold surge since the start of 2022, before easing recently. This “unchecked retail surge” could led to future challenges for the markets as well as for household finances, Sitharaman said last week.