Derivatives Market Strategies

Derivative Market in India – Meaning, Types, Participants, Differences

Do you love to keep track of the stock market and its trends? Have you ever heard about derivative market in India but are unsure what it means or how it works? If yes, then this blog post is for you!

Derivatives play a significant role in India’s financial markets. It is an exciting world of trading that offers huge returns if done right, but at the same time can be risky too. In this article, we will explore everything about derivative market in India – from their meaning and types to participants and differences. So fasten your seat belts as we dive into the world of derivatives!

Derivatives & Types of Derivative Market in India

The derivative market in India is a financial market where investors trade in financial instruments whose value is derived from an underlying asset, such as stocks, indices, currencies, or commodities. Derivatives are financial contracts that derive their value from the price movements of these underlying assets. The common types of derivatives include futures, options, and swaps. Derivatives are used for hedging or speculation. In India, the derivative market is regulated by the Securities and Exchange Board of 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 standardized contracts are traded on an exchange. The OTC market is decentralized, where contracts are negotiated directly between two parties.

The four main participants in the Indian derivative markets are:

1) Hedgers: Hedgers use derivatives to minimise the risk of adverse price movements in the underlying asset. For example, a farmer may use futures contracts to lock in a selling price for his crops in advance of harvest.

2) Speculators: Speculators seek to profit from anticipated price changes in the underlying asset. They take on increased risk in hopes of earning a higher return.

3) Arbitrageurs: Arbitrageurs seek to profit from price differences between different markets for the same asset. For example, they may buy a currency at one exchange rate and then sell it immediately at a higher rate in another market.

4) Market Makers: Market makers provide liquidity by quoting bids and asking prices for derivatives contracts. They also facilitate trades between buyers and sellers.

Difference Between Cash and Derivative Market

As mentioned above, derivatives are financial contracts that derive their value from an underlying asset. The underlying asset can be a commodity, security, currency, or index. Derivatives can be used for hedging purposes or for speculation.

The derivative market in India started in the early 1990s. The first derivatives contract was launched on the Bombay Stock Exchange (BSE) in June 2000. Since then, the derivative market in India has grown exponentially.

There are two types of markets – The cash market and the derivative market.

  • The difference between cash and derivative market is that transactions are settled on the spot in the cash market.
  • In contrast, in the derivative market, transactions are settled at a future date.
  • The participants in cash market are known as spot traders, while participants in derivative market are known as futures traders.
  • Spot trading is done in the physical form of commodities, whereas futures trading is done via derivatives contracts.

In India, both BSE and National Stock Exchange (NSE) offer derivatives trading facilities. NSE’s derivates platform is called Nifty Futures and Options (F&O). BSE offers F&O trading on its own exchange as well as on NSE’s exchange.

Difference between forward and futures contracts in the derivative market 

Derivative market in India provide a range of instruments to help investors hedge risk and speculate on price movements. Forward contracts and futures contracts are two types of derivatives that involve the same underlying asset but have distinct differences in structure and characteristics.

  • A forward contract is an agreement between two parties for buying or selling an asset for a specific price at a predetermined future date. It is an over-the-counter (OTC) instrument traded directly between two parties without any exchange involvement.
  • On the other hand, futures contracts are standardised agreements that are listed for trading on exchanges through brokers. They have several features, such as margin requirements, standard settlement dates and delivery procedures that minimize counterparty credit risk associated with OTC forwards. Futures also offer greater diversification opportunities since they can be bought from multiple counterparties instead of just one, like in the case of forward contacts.


The derivative market in India is an important asset class, offering innovative products and services to various participants. With their wide variety of products and services, derivative markets offer unique opportunities for those looking to take advantage of lucrative investment scenarios -may it be hedging, arbitraging or speculation.

Understanding the various types of derivatives and their benefits can help investors make informed investment decisions. Understanding how they differ from traditional markets can also give traders new insights into risk-adjusted returns.

The Advanced Derivatives Market Strategies Program is an excellent way to gain the necessary knowledge and skills to pursue a career in market strategies. This program by BSE Institute Ltd provides participants with a comprehensive understanding of the key concepts and Learning about key derivative instruments, Trading Strategies Using Options, derivatives and risk management.

The Advanced Derivatives Market Strategies course builds on that foundation with more advanced topics like Futures Contracts, Black Scholes Model and trading strategies. With this knowledge, graduates will be well-positioned to enter roles such as derivative trader or derivative operations analysts in various industries.

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