A Study on

Future of Derivative In India

(NMIMS GLOBAL ACCESS

SCHOOL FOR CONTINUING
EDUCATION)
Year-2024

Submitted by
Sanidhy Nipsaiya

SAP Id-
77221917414
 Acknowledgment

"Creating a project report is impossible without the support and

motivation from others. This project is no different."

Right from the beginning of this report, I want to express my deep

gratitude to everyone who has contributed to this project. Their
active guidance, assistance, teamwork, and encouragement were
crucial for my progress in this project.

I am taking this moment to express my sincere appreciation to

NMIMS Global Access School for Continuing Education (NGA-
SCE) for providing a unique opportunity to gain exposure and
acquire knowledge in the field of Finance. I am particularly
grateful to my project mentor for enriching my learning experience
with his advice, insights, and continuous support throughout this
journey. I also want to acknowledge his contributions to my
understanding of finance and the support from my colleagues for
their genuine collaboration. Without their help, the success of this
project would not have been achievable on my own.

Furthermore, I want to thank everyone who played a role in

helping me complete the project, especially my parents and peers
who have supported me throughout this process.

In conclusion, I want to express my heartfelt thanks to everyone

who has directly or indirectly supported me in this project.
INDEX

1. Introduction
1.1 Introduction
1.2 What is a Derivative?
1.2.1 Types of Derivatives
1.2.2 Risk involved in Derivatives
1.3 Market Participants and Makers
1.3.1 Hedgers
1.3.2 Speculators
1.3.3 Arbitrageurs
1.4 Regulation and its structure
1.4.1 Reserve Bank of India
1.4.2 Securities and Exchange Board of India
1.5 Growth of Derivative Market in India
1.6 Future of Derivative Market in India
2. Review of Literature

2.1 Evolution of Financial Derivatives Market in India - A Case Study.

By :- Ashutosh Vashishtha & Satish Kumar

2.2 Function and Expansion of Financial Derivatives in the Indian Capital

Market.
By :- Dr. Himanshu Barot & Dr. Nilesh B. Gajjar

2.3 Derivative Market in India: Opportunities and Challenges.

By :- Dr. Priyanka Saroha & Dr. S.K.S. Yadav

2.4 Evolution of Financial Derivatives Market in India and its Role in Global
Financial Crisis.
By :- Dr. Shree Bhagwat, Ritesh Omre & Deepak Chand
3. Research Approach
3.1 Research Objective
3.2 Research Goals
3.3 Subject Area 41
3.4 Summary of the Study
3.5 Research Approach
3.6 Instruments
3.6.1` Primary Data Collection
3.6.2 Secondary Data Collection
3.6.3 Questionnaire Design
3.6.4 Study Constraints
3.6.5 Instruments for Data Collection
3.7 Gathering Primary Data
3.8 Gathering Existing Data
3.9 Study Hypotheses
4. Examination of Data, Understanding, and Display
4.1 Examination of Derivative Market Expansion Using Existing
Data.
4.2 Examination of Investor Perspectives on Derivatives Products
Using Existing Data.
4.3 Evaluation of Hypotheses
4.3.1 Comparison of Income and Investment in Derivative Market
4.3.2 Comparison of Age and Investment Motivation in Derivative
Market
4.3.3 Comparison of Risk-Taking Behavior and Return on
Investment
5. Conclusions and Suggestions
6. References
7. Appendix (Questionnaire)
 CHAPTER 1
INTRODUCTION
1.1 Overview

Typically, a derivative financial contract is structured around the

value of a specific commodity, security, interest rate, stock index,
exchange rate, oil price, or similar elements. Consequently, a
derivative is a financial tool whose worth is linked to an underlying
variable or asset. It does not grant ownership directly but rather
serves as a promise to transfer ownership.

Every derivative contract is rooted in financial assets. The

underlying asset of a derivative can be any of the following
categories:

- Bonds
- Over-the-counter (OTC) contracts
- Interest rates
- Foreign Exchange rates
- Short-term debt securities like Treasury bills

The essence of financial management is to increase profits while

minimizing effort, cost, and risk. In today's era, significant profits
can be made through stock markets, foreign exchange,
commodity markets, and various other avenues. These markets
are characterized by high risk and volatility, which may or may not
lead to substantial profits. Investors often find themselves in risky
situations to profit from their trades.

The Derivatives Market is the hub for trading derivatives.

Derivatives are financial instruments whose values are derived
from the values of the underlying assets. The fluctuations in the
value of these derivatives are influenced by the volatility of the
underlying assets. Common underlying assets include stocks,
bonds, currencies, interest rates, commodities, and market
indices. Since derivatives are essentially agreements between
two or more parties, they can also use less conventional
underlying assets like weather data or rainfall amounts. Types of
derivatives include Future Contracts, Forward Contracts, Options,
Swaps, and Credit Derivatives.
All forms of derivatives fall into this category. There are two
distinct categories of derivatives markets: those traded on
exchanges and those traded directly between parties. While
numerous participants engage in both, the legal status of these
instruments and the way they are traded differ significantly.

Often referred to as the pinnacle of innovation, derivatives

represent a contemporary business concept that enables
investors to increase their returns while minimizing their exposure
to risk. It involves delaying benefits until you reach your ideal or
satisfactory point.
Year Activity

A committee was appointed under the chairmanship of

Shri.
1991 M. Narasimham, to examine all aspects of the
structures, organization, function and procedures of
the financial system.
Free pricing of issues, FDI & FII norms relaxed.
199 Parliament passed SEBI Bill &accorded statutory status
2 as
on autonomous body to SEBI.
1993 Private MFs allowed.
1994 Automated screen - based trading.
1998 Dematerialization.
Rolling settlement.
200
0 Index derivatives.

2001 Stock Derivatives

 2003 T+2 Settlements.
Corporatization and Demutualization of Exchanges.
Reforms in Corporate governance.

200 Comprehensive Risk management framework.

5 IPO grading.
Gold exchange traded fund.
Initiatives to develop Corporate Bond market.
200
7 Short selling and Stock lending and Borrowing.

Source: Indian Financial Sector. Ratings. Volume V. Advisory Group on Institutions and Market Structure. Financial
Sector Ratings Committee. March 2009, Reserve Bank of India, Government of India.

1.2 What's a derevatives?

outgrowth is a fiscal instrument whose value is determined by the value of an

beginning asset. The price of the asset being traded is the variable that forms
the base ofthe outgrowth. exemplifications include the price of stocks, the
price of goods similar as wheat, rice, and legumes, interest rates, and
exchange rates.

A outgrowth is a fiscal instrument whose value is" deduced" from the value of
another fiscal instrument or profitable variable. Thevalue of derivations is
determined by other prices or factors, making them a good tool for transferring
and managing threat. John C. Hull, “ A outgrowth may be defined as a fiscal
instrument whose value depends on( or is deduced from) the value of some
other more abecedarian underpinning variable. ” Robert L. McDonald, “ A
outgrowth is simply a fiscal instrument( or, more simply, a contract between
two persons) whose value depends on the price of commodity differently. ”
According to the Securities Contracts Act of 1956, derivations include
Securities deduced from debt instruments, stocks and loans( whether or not
secured), threat instruments, or contracts for difference, or other types of
securities.

Contracts whose value is deduced from the price of an indicator or the price of
an beginning security. In effect, derivations are technical contracts that give
temporary walls or protection against losses due to unanticipated price
oscillations or volatility. As a result, derivations are an important threat
operation tool. Pricing, threat transfer and request completion are just some of
the profitable conditioning that derivations perform. Prerequisites for the
derivations Market For a country to succeed in the derivations request, five
crucial conditions are necessary a) Large request capitalization With a request
value of about$ 2.8 trillion, India is way ahead of numerous other countries
that have successfully introduced derivations requests.

b)
Liquidity of theunderlying asset A many times agone India’s total trade
volume was around Rs 300 crore per day. The current diurnal trading volume
in India is around Rs 15,000 crore. This implies a liquidity position that's about
six times higherthan the former terrain. Empirical studies have shown that
there are hardly any fiscal instruments in the country that are sufficient to
supportthe derivations request at present.

c)

Clearinghouses that guarantee deals One of the most important factors in

creating a vibrant and robust derivations request is counterparty threat. thus,
for the derivations request to serve, a guarantee of deals is needed. The
National SecuritiesClearing Corporation( NSCC) is the first National Securities
Clearing Corporation( NSCC) established in July 1996. NSCC is responsible
for taking over all open positions on the National Stock Exchange( NSE) for
which it clears. Other exchanges are considering creating their own well-
funded clearing companies to give trading content.

d)

Physical structure All stock requests in India are moving towards satellite
connectivity, which will enable investors and dealers to pierce liquidity
services from anywhere in the country. This dispatches structure, along with
India’s computer tackle and software technology, will produce a computer
system for setting up derivations requests. Setting up an automated trading
system will give you witness with a large number of implicit exchanges, which
will help you when setting up your derivations request. e) threat forbearance
and logical chops Indian investors have a high threat forbearance and can
repel the pitfalls posed by derivations. This capability is also reflected in the
volume of deals in the capital requests, which are analogous to the futures
request. In terms of logical capabilities, numerous of the subtle trading and
pricing ways in derivations bear a high position of logical chops. India has a
large number of financially smart mathematicians who exceed in this field.
Eventually, a distinct advantage of the Indian request is that we've expansive
experience in dealing with the futures request through cyclical capital, which is
n't really a spot request but rather a futures request( with generalities similar
asinter-market perimeters, low delivery rates and prices, with the exception of
the last day of agreement). We also have active futures requests for six
goods.

1.2.1 Types of Derivatives.

a) Classification of Derivatives

Derivatives

Financial

Commodity Derivatives Commodity derivatives are

financial instruments whose value is determined by the price
of an underlying commodity, such as rice, paddy, gold,
silver, or oil. Commodity derivatives were
created to provide farmers with a risk management tool.
They can guarantee that their crops will be sold at a set price in
the future.

Financial Derivatives A financial instrument whose value is

determined by the value of one or more underlying assets or
asset indices. Derivatives can be created using stocks (stocks), li
abilities (bonds, banknotes, and notes), currencies (USD, JPY,
GBP, and EUR), and indices of these elements.
B. Types of Derivatives Products
 Derivatives

Future Swap

Forward Contract

A forward contract is a contract to buy or vend an asset at a

specific price on a predetermined date. One party to the contract
takes a long position and agrees to buy the beginning asset at a
specific price on a specific future date. The engaged asset can be
cash, a commodity, a commodity, etc. The other party takes a
short position on the asset and agrees to vend it at the same price
on the same date. Other contract terms, similar as delivery date,
price, volume, etc., are negotiated between the parties.

Forward contracts are generally negotiated outside of an

exchange. crucial features of forward contracts High degree of
individuality- the counterparty can choose and set the terms, and
for illustration, the exact identification of the beginning asset is
handed. All parties are exposed to the threat of the counterparty's
dereliction, i.e. the counterparty's incapability to deliver or pay the
needed quantum.

Banks, investment banks, governments, and pots all share.

Trading in a large, private, and generally limited request. Stocks,
bonds, forex, goods, or a combination of these can be used as
beginning asset. The beginning asset can be an interest rate. It's
generally held to maturity and has little request liquidity. A forward
contract is an agreement between two parties to change means in
the future. Physical computation A forward contract can be
entered into by an investor holding a short position( the dealer) to
physically deliver the beginning asset to an investor holding a
long position( the buyer), and the buyer pays the dealer an
agreed forward price on an agreed agreement date. Cash
agreement This does n't mean that the securities have been
delivered or entered.

Each party pays( receives) cash fellow to its position in the net
loss( gain) of the contract. ii. Futures contract Like a forward
contract, a futures contract is a contract between two parties
whereby the buyer agrees to buy the beginning asset from the
dealer at a price agreed upon moment in the future. Unlike
forward contracts, futures contracts are n't traded simply. rather,
they're changed on a honored securities exchange. The
exchange also standardizes futures contracts. All terms except
the price are determined by the stock request.

The clearing house also protects both buyers and merchandisers

of futures contracts from counterparty threat. This guarantee is
handed by the clearing house to insure that the buyer or dealer of
a futures contract does n't suffer damage due to the
counterparty's failure to perform its obligations.However, the
clearing house intervenes to insure that the counterparty does n't
suffer damage due to the failure to perform its scores, If one party
fails to perform its scores. The clearing pot holds the quantum
from both parties as collateral to insure performance of their
scores under the contract.

The periphery is an quantum that can be in the form of cash or

other fiscal means. crucial Features of Futures Contracts
Organized Exchange Unlike forward contracts, which are reused
outside of an exchange, futures are traded on established
exchanges that have a specific physical position where the sale
takes place. This creates a liquid request where futures can be
bought and vended at any time, just like stocks.

Standardization The volume of the commodity to be delivered and

the maturity date are agreed upon between the buyer and dealer
through a foreign exchange futures contract and can be
acclimated to suit the buyer's requirements. Both are formalized
by the exchange where the futures contract is traded within the
futures contract. Clearinghouse All contracts traded on an
exchange are cleared through the exchange.

For illustration, the exchange acts as the buyer for all

merchandisers and the dealer for all buyers in all contracts and
trades. This has the advantage that A and B do n't have to do a
credit check on each other. This also ensures the fiscal stability of
the request. periphery As with any other exchange, only members
can trade futures exchange contracts. Others can use members
as brokers to use this tool. As a result, exchange actors can trade
for themselves and their guests. Clearing members or clearing
house actors are a subset of actors, andnon-clearing actors must
clear all trades through clearing actors. periphery is generally 2.5-
10 of the contract price, but can be advanced or lower.

The party acting on behalf of the customer expects the customer

to pay periphery. periphery can be in cash or in the form of
securities similar as government bonds or bank letters of credit.
request Marking The exchange uses a marking system where all
outstanding contracts are reimbursed at the agreement price of
that trading session at the end of each trading session. This
means that some actors lose and some actors win.

This is conformed by debiting the periphery account of the losing

party and crediting the account of the winning party. There's
nearly no factual delivery. The commodity is actually delivered by
the dealer in utmost forward contracts and accepted by the buyer.
A forward contract is entered into to buy or vend the commodity in
order to make a profit at the current price. In discrepancy, lower
than 1 of contracts traded innermost futures requests actually
affect in delivery.
 Flow of Transactions in a Futures Contract

In the diagram below, the fundamental flow of a transaction

involving three parties, namely the Buyer, Seller, and Clearing
Corporation, is represented.

Future’s language

Contract Size

The contract value at a particular indicator position. It's Index

position * Multiplier.

Multiplier

It's apre-determined figure that is employed to establish the

contract's size. It refers to the cost per indicator point.

Tick Size

It's the lowest price variation between two analogous citations.

Contract Month
The month in which the contract will expire.

Expiry Day

The last day when the contract can be traded and progressed.

Open interest

At any one time, the total number of open long or short positions
on the request. Because the overall long effects for the request
are equal to the total short positions, only one side of the
contracts is counted for calculating open interest.

Volume

The number of contracts traded during a particular period of time.

During a single day, a week, or a month.

Long position

At any moment in time, you may have an outstanding/ unsettled

steal position.

Short position

At any given time, you may have an outstanding/ unsettled deals

situation.

Open position

At any time, outstanding/ unsettled long or short position.

Physical delivery
The open position shall be fixed by the delivery of the
underpinning particulars at the end of the contract. Living is low in
the unborn request.

Cash agreement

Open position shall be paid in cash upon the expiry of the

contract. The indispensable force procedure( ADP) for these
contracts — Open position at contract expiry is fixed by two
parties — a purchaser and a dealer, under terms not quested in
the exchange. A major part worldwide is concluded by
indispensable delivery procedure for energy and associated
contracts( crude oil painting, heater and petrol oil painting).
lucre for futures

A lucre is a implicit gain/ loss that a request player would get by

changing the price of the introductory asset. Linear nets are
handed for unborn contracts. It simply implies that both losses
and gains are horizonless for the purchaser and dealer of futures
agreements.

lucre for Buyer of futures( Long futures)

The payouts for a buyer of a unborn contract are like the

payment for a holder of an asset. He has both downside and
strike conceivably endless. Take the script of an individual tipster
who purchases a contract for two months of Nifty indicator when
the Nifty reaches 15520. In this situation, the beginning asset is
Nifty. When the indicator rises, the long- term position begins to
profit while the indicator falls and begins to lose.
 P

E2
F E
LOS 1
S

CASE 1- The consumers bought the futures contract at( F); if the
price of the futures contract rises to E1, the buyer earns a profit
of( F)( FP).

CASE 2- When the futures price falls below( F), the buyer loses;
if the futures price falls below E2, the buyer loses( FL).

lucre for dealer of futures( short futures)

The payout for a person dealing a unborn contract is like the

payment for the person syncopating an asset. He has both
downside and strike conceivably endless. Take a tipster who sells
a two- month contract for the future of the Nifty indicator while the
Nifty is around 15520. In this situation, the beginning asset is
Nifty. When the indicator falls, the short- term position begins to
make gains as the indicator falls, and losses begin to arise.
 P
PROFIT

E2
E1 F

LOSS

CASE 1- The dealer sells the unborn contract for( F); if the unborn
trades at E1, the dealer earns a profit of( F)( FP).

CASE 2- When the unborn price exceeds the current price, the
dealer suffers a loss( F) If the unborn price drops to E2, the dealer
will lose plutocrat( FL).

iii. Options Contracts

An volition is the contract which grants the right to buy and vend
the beginning asset at a defined price, on or before a certain date/
day. The party who takes a long position, i.e., to buy the option is
nominated the buyer/ holder of the option and the party takes the
shortest position.
The buyer of the option is entitled but not obliged to buy or vend
the beginning property, whereas the buyer of the option has a
contractual duty. therefore, the buyer/ holder option will only be
allowed to use the option if it's profitable, but the pen of the option
would be fairly obliged to admire the contract when he decides to
exercise.

Categorization of Option Contracts:

 Options Contacts

Call Options Contact Put Options Contact

• Call Option Contracts

A contract that gives its proprietor the right but not the obligation
to buy an beginning asset( Stock, Bond, Currency & Commodity)
at a specified price on or before a specified date is known as a “
Call option ‟. The proprietor generates profit as long as he sells
for a advanced price and purchases for a cheaper price in the
future.
• Put Option Contracts

A contract that gives its proprietor the right but not the obligation
to vend an beginning asset( Stock, Bond, Currency & Commodity)
at a specified price on or before a specified date is known as a “
Put option ”. still, he makes a profit, If the proprietor buys at a
lower current price and sells at a lower future price.However, no
option will be exercised, If the price does n't rise in the future.
Option’s language indicator option The beginning asset is the
indicator of these options. For case, Nifty, Sensex, etc.
possibilities. Stock option These options have individual stocks
as the beginning asset. For illustration, option on ONGC, NTPC
etc. Buyer of an option An option buyer is someone who has a
right but not a duty under the contract. He pays a figure to the
option dealer for enjoying this honor, which is known as the"
option decoration." pen of an option If the buyer of an
indispensable exercises his rights, the author is a person who
receives the option decoration, which obliges him to vend buy the
means. American option The proprietor of such an option should
have the right to exercise his right on or before the contract expiry
date/ day. European option The proprietor of such an option can
only exercise his right on the contract's expiration date/ day. Index
options are European in India. Option price Premium It's the
quantum paid to the option dealer by the option buyer.

Lot size The number of units of underpinning asset in a contract is

appertained to as the lot size. Nifty option contracts have a lot
size of 50.

Expiration Day The date on which a secondary contract is no

longer valid. It's the contract's last trading date/ day. Contracts are
due to expire on the final Thursday of each month. Spot price( S)
In the spot request, it's the price at which the beginning asset
trades.

Strike price or Exercise price( X) The strike price is the price per
share at which the option holder can buy or vend the beginning
securities.

In the plutocrat( ITM) option This option would give holder a

positive cash inflow, if it were exercised incontinently. A call
option is said to be ITM, when spot price is advanced than strike
price. And, a put option is said to be ITM when spot price is lower
than strike price. In our exemplifications, call option is in the
plutocrat.

At the plutocrat( ATM) option If executed incontinently, the

plutocrat option would lead to zero cash inflow. So, the strike
price is the same as the spot price for calling and putting in ATM
options.

Out of the plutocrat( OTM) option The cash option is one with a
hit price that's worse than the spot price for the option holder. In
other words, if the holder is exercised incontinently, this option
would give a negative cash inflow. A spot price is lower than the
strike price. A call option is considered to be OTM. And an OTM is
an option if the spot price is advanced than the price of a strike.
Put the option out of the cash in our exemplifications.

natural value The below specified decoration option consists of

two corridor – essential value and time value( natural value).
For an volition, the natural value refers to the quantum by that
option in the plutocrat, i.e., before conforming for the decoration
paid, the quantum that an option buyer realizes when he
incontinently exerts it. thus, the natural value is simply for the in-
plutocrat options, whereas the in- plutocrat options have o natural
value. A negative essential value can noway have an option.

Time value It's the difference between the decoration value and
an option, if any, natural value. The temporal value of ATM and
OTM options is limited, as their value innately is zero.

Open Interest The total number of option contracts outstanding

for an beginning asset is the open interest as explained in the
unborn section.

Factors Determining Option Value

Underlying Price- The current request price for the beginning

asset is the most important determinant in an option decoration.
As the prices of the underpinning grow in general, call prices are
rising and prices are falling. Again, if the underpinning prices
decline, calling prices fall and prices rise.

Strike price- The price of the strike decides whether the option
has an essential value. Note that the essential value is the
difference between the option's strike price and the current
beginning price. The decoration generally grows when the option
gets more in cash( where the strike price is more profitable than
the being beginning price).
 Time to expiration- The longer an option has until expiration, the
lesser the chance it'll end up in- the- plutocrat, or profitable. As
expiration approaches, the option's time value decreases. The
junior’s volatility is a factor in time value If the underpinning is
largely unpredictable, you can nicely anticipate a lesser degree of
price movement before expiration. In the case of low volatility, the
reverse is true.

Volatility Volatility is the extent to that, whether over or down,

price moves. The speed and quantum of the price change
underscored are measured. literal volatility refers to the real price
variations seen over a certain period of time.

threat free interest rate- Interest rates and tips affect option
values in a minor but conspicuous way. As interest rates grow,
call decorations are generally adding and prices are down. The
cost of retaining the beginning products is this Either interest( if
the plutocrat is espoused) or lost interest income is charged to the
accession( if being finances are used to buy the shares). The
buyer will bear interest freights in each situation.

tip- tips can affect option prices because the underpinning stock's
price generally drops by the quantum of any cash tip on theex-
dividend date. As a result, if the underlining’s tip increases, call
prices will drop and put prices will increase. Again, if the
underlining’s tip decreases, call prices will increase and put prices
will drop.

Pay off Charts for Options

 R PR
IT
S
A E
O

E LO P

Payoff for Buyer of Call Option: (Long Call)

The payment of a purchaser's options depends on the

spot price of an asset. The following diagram
demonstrates the payment of a call option by
purchasers.

S = Strike price ITM = In the Money

SP =Premium / loss ATM = At the
Money
E1 = Spot price 1 OTM = Out of the
Money
E2 = Spot price 2
SR = Profit at spot
price E1

CASE 1( Spot Price> Strike price)

 Because the beginning asset's Spot price( E1) is advanced than
the strike price( S).

still, the profit will likewise rise above that of the purchaser( SR)(
SR)
If the price climbs further than E1.CASE 2( Spot Price< Strike
Price)

PROFI
P
IT AT
E
E
S
OT

R
LOS
Because the beginning asset's spot price( E2) is lower than the
strike price( S)

still, also the buyer's loss is limited to his decoration, If the price
falls below E2.( SP).

lucre for dealer of Call Option( Short Call)

The dealer's payment for the call option depends on the position
price of the asset. The payment for a dealer of a calling option is
shown in the following graph

S = Strike price ITM = In the Money

SP =Premium / loss ATM = At the
Money
E1 = Spot price 1 OTM = Out of the
Money
 E2 = Spot price 2
SR = Profit at spot price
E2

CASE 1( Spot price< Strike price)

Since the underpinning spot price( E1) is below the strike price(
S). still, also the dealer also receives the profit( SP), if the price
lowers lower than E 1, If the price drops below E1.
CASE 2( Spot price> Strike price)

As the spot price( E2) of the beginning asset exceeds the strike
price( S), the
dealer receives loss( SR), when the price exceeds E2, the
dealer's loss also
exceeds E2( SR).

lucre for Buyer of Put Option( Long Put)

The payment of the option's purchaser relies on the spot price of

the asset. The graph below depicts the payment of a call option
by the buyer.
 PROFIT
R

ITM
S
E2
E1 ATM
OTM

P LOSS

S = Strike price ITM = In the Money

SP =Premium / loss ATM = At the
Money
E1 = Spot price 1 OTM = Out of the
Money
E2 = Spot price 2
SR = Profit at spot price
E1

Summary of options

Call option buyer Call option writer

(seller)
Pays premium Receives premium
Obligation to sell
Right to exercise and shares if
buy the share exercised
 Put option buyer Put option writer
(seller)
Pays premium Receives premium
Obligation to buy
Right to exercise and shares if
sell shares exercised
Profits from rising
Profits from falling prices prices or remaining
neutral
Limited losses, Potentially
potentially unlimited
unlimited gain losses,
limited gain
Profits from decreased
Profits from rising prices or neutral pricing
Potentially infinite profit, Potentially
finite losses unlimited
losses,
limited gain

iv. exchange Contracts

The exchange of fiscal instruments is a secondary agreement

between two parties. These instruments can be nearly anything,
but utmost barters involve cash overflows grounded on a abstract
star quantum agreed by both parties. The director does n't
generally change hands. One leg of a exchange is included in
each cash inflow. In general, the one cash inflow is fixed while the
other variable is the floating currency exchange rate or the
indicator price grounded on a standard interest rate.
 An interest rate exchange is the most common type of exchange.
barters are n't changed, and retail investors generally do n't
change. rather, exchange contracts between companies or fiscal
institutions are over- the- counter contracts.
Interest Rate exchange

An exchange between two counterparties of the interest rate is a

contractual agreement to change cash overflows in future. Two
types of legs are present( or series of cash overflows). A flat rate
payer makes a number of fixed payments and these cash
overflows are known at the morning of the exchange. The variable
rate payer makes a number of payments that are grounded on
unborn interest rate situations( for illustration, a quoted indicator
similar as LIBOR), and utmost or all these cash overflows do n't
appear at the morning of the exchange. The exchange agreement
sets all terms and language demanded for administering the
exchange including the ideational star, fixed pasteboard,
addendum, day counting system, effective date, end date, cash
inflow frequence, compounding rate and floating indicator base. In
addition, the exchange agreement sets forth the terms and
conditions of the exchange.

A rate exchange can be moreover set for floating( generally), or

for floating( frequently appertained to as a base exchange). To
add up, each step of the exchange( using the applicable interest
rate wind), and also adding up the two findings, is charged to
price an interest rate exchange.

Commodity exchange

A product exchange is an exchange in which one of the

commodity payment aqueducts is fixed and the other docks.
generally only payment aqueducts are shifted, not the star,
although factual delivery is getting more frequent.
Since themid-1970s, commodity barters live and allow directors
and consumers to hedge prices for commodity products. In
general, the consumer would pay for growing input prices as a
fixed payer. In this situation, the manufacturer is paying floating(
that is, carrying the product) thus precluding falling commodity
prices. The difference will be paid by the floating payer if the price
of the floating commodity is advanced than the fixed price.

Foreign- Exchange( FX) Swaps

An FX exchange is where cash flows from one leg are paid in

one currency, while cash flows in another currency are paid from
the other. A FX exchange may either be fixed for floating, floating
or fixed for floating. To price an FX exchange, each leg in its
currency is valued first( using the applicable wind for the
currency).
Total Return exchange

Total Return exchange( TRS) is a bilateral fiscal contract where

one counterparty pays the complete return of the asset in
exchange, including all payments of interest and capital
appreciation, or deprecation, for regular fixed or change cash
overflows. The main birth means for full return barters are
commercial bonds, loans and stocks. A complete return exchange
may be paid before the end date only or occasionally, e.g., daily.

Uses of exchange
1. produce arrears or means, whether synthetic fixed or floating,
. To hedge against adverse movements,
. As an asset liability operation tool,
. Reduce the cost of financing through the use of the relative
benefits in fixed/ afloat rate requests for each counterparty.

threat involved in derivations

 request, counterparty, liquidity, and interconnectivity are the main
threat associated with trading derivations. derivations are
investment instruments conforming of a contract between parties
whose value stems from the value of a fiscal asset underpinning it
and depends on that value. Futures, options, discriminational
contracts or CFDs and barters are among the most frequently
traded derivations. request threat
request threat in any investment refers to the general threat.
Investors are taking the judgments and positions on hypotheticals,
specialized analyses or other variables that lead to specific
conclusions about the performance of the investment. The
probability of an investment being profitable and the threat/ price
proportion of the implicit losses as compared to implicit earnings
are important corridor of investment analysis.

Counterparty threat

The counterparty threat or counterparty credit threat emerges

when a dereliction in the contract occurs in one of the parties
sharing in the trade in derivations, similar as the buyer, dealer or
dealer. In untoward requests or OTCs, that are significantly less
regulated than common trading exchanges, this peril is larger.

Liquidity threat

Investors that plan to exit a secondary business before maturity

are at a
liquidity threat. These investors have to assess if the deal is
delicate to close out or whether being tender spreads are so high
that they're expensive.

1.3 request Actors and Makers

 Three feathers of request players – wall, dealers( occasionally
called bookmakers) and judges – generally do. In colorful request
settings an existent might play different places. You can check for
one of the following

• Banks

• Directors pots Dealers Farmers

• Financial Institutions like Insurance companies, Investment

Banks, Merchant Banks
• Exporters and Importers

• individualities

• Governments National, State, Original

wall

They defy the threat of the beginning asset values and employ
derivations in order to lower their threat. pots, associations and
banks all barricade or lower request factors including interest
rates, equity values, bond prices, exchange rates and commodity
prices via derivations products.

For illustration, growers that factory wheat do n't know how

important they will admit during the season of crop. also, the price
of the flour shop for the unborn wheat is uncertain. Both the
planter and the mess would conclude an advance tender in which
the planter would agree to vend his wheat at a destined price to
the flour shop. During the crop season, the planter expects a drop
in prices and the planter expects a price gain. Both parties are
thus exposed to price threat. The forward contract they concluded
would exclude the pricing threat for both parties. The players are
appertained to as hedging and as wall.
 With the delivery of the indicated means, the wall wish to
conclude the contract. The growers delivering the wheat to the
flour mess on the specified day and the agreed price would
conclude the contract in the script stated.

Bookmakers

They essay to anticipate unborn price movements of the

underpinning means and take positions in secondary agreements,
depending on their perspective. derivations are chosen over
underpinning means for enterprise because they give influence,
are less expensive( sale costs are frequently less than the
underpinning cost) and may be enforced in magnitude briskly(
high volumes request).
For illustration, for a contract which expires in three months, the
forward price in US bones
is Rs. 73. still, he she will buy and vend latterly moment, If the
tipster thinks that the US currency price will be Rs 75 three
months hence. rather, he'd vend now and buy latterly if he feels
that in one month, he'll cheapen the US currency in Rs. 71. The
end is n't to give the emphasis but rather to make a profit from the
price difference. Bookmakers make the request liquid, competitive
requests and request size increase. It also helps wall to
accessibly discover opposing parties.

Arbitrage is an agreement that makes profit by taking advantage

of a price distinction in a product in two separate commerce.
Arbitrage comes when a dealer bought a property from one place
cheaply and arranged at the same time to vend it to another place
at a advanced price. similar possibilities will presumably not last
for a long time as judges will rush to similar deals and thus close
the price difference at colorful spots. For illustration, if the Infosys
partake price is Rs. 1410/- on the National Stock Exchange and
Rs. 1430/- the judges will buy Rs. 20/- each share at the NSE and
coincidently vend the BSE at the BSE. An adjudicator is threat-
neutral and makes amiss earnings in requests. These brief life
chances are taken into consideration since these blights are
incredibly short life. The bookmakers and judges are unnaturally
inside the same group as they do n't retain, disavow or physically
deliver the beginning asset like wall. Both make the request
competitive by helping people find prices there. The difference is
the quantum of threat they take between the two groups. While
bookmakers have their ideas on the unborn price of the stressed
asset, the judges concentrate on the price difference across
multiple commerce, espousing a riskless position without
investing themselves. Regulation and its structure

Reserve Bank of India

Reserve Bank of India( RBI) was established in 1935 and is the

Central/ Federal bank of India. The Reserve Bank of India( RBI) is
the fiscal and banking system's controller, formulating financial
policy and administering foreign exchange control norms. A broad
sector of fiscal institutions, which include marketable banks,
collaborative banks,non-bank fiscal institutions and multitudinous
fiscal requests, is regulated by the Reserve Bank of India.

On April 20, 2007, the RBI blazoned expansive rules on the use
of foreign currency futures, barters, and options in the OTC
request in order to help companies manage currency request
volatility. At the same time, the RBI formed an internal working
group to probe the benefits of introducing currency futures.
The Terms of Reference to the Committee were as under
1. To coordinate the nonsupervisory places of RBI and SEBI in
regard to trading of Currency and Interest Rate Futures on the
Exchanges.
2. To suggest the eligibility morals for being and new Exchanges
for Currency and Interest Rate Futures trading.
3. To suggest eligibility criteria for the members of similar
exchanges.
4. To review product design, periphery conditions and other
threat mitigation measures on an ongoing base To suggest
surveillance medium and dispersion of request information.
6. To consider microstructure issues, in the overall interest of
fiscal stability.

Securities and Exchange Board of India

SEBI Act, 1992 provides for establishment of Securities and
Exchange Board of India( SEBI) with statutory powers for( a)
guarding the interests of investors in securities( b) promoting the
development of the securities request and( c) regulating the
securities request. Its nonsupervisory governance extends over
commercial in the allocation of capital and transfer of securities, in
addition to all interposers and persons associated with securities
request.

Growth of Derivative Market in India

In India, derivations requests have been performing since the

nineteenth century, with systematized trading in cotton through
the establishment of the Cotton Trade Association in 1875.
derivations, as exchange traded fiscal instruments were
introduced in India in June 2000. The National Stock Exchange(
NSE) and Bombay Stock Exchange( BSE) are the largest
exchanges in India in derivations trading. The first secondary
contract in India was launched on NSE was the Nifty 50 indicator
futures contract. The equity derivations member in India is called
the Futures & Options Segment or F&O Segment. A series of
reforms in the fiscal requests paved way for the development of
exchange- traded equity derivations requests in India. L.C. Gupta
Committee, set up by the Securities and Exchange Board of
India( SEBI), recommended a phased preface of derivations
instruments with tone- regulation by exchanges, with SEBI
furnishing the overall nonsupervisory and administrative part. In
1999, the Securities Contracts( Regulation) Act of 1956, or SC( R)
A, was amended so that derivations could be declared as “
securities ”. This allowed the nonsupervisory frame for trading
securities to be extended to derivations. The Act considers
derivations on equities to be legal and valid, but only if they're
traded on exchanges. At present, the equity derivations request is
the most active derivations request in India. Trading volumes in
equity derivations are, on an average further than three and a half
times the trading volumes in the cash equity requests. mileposts
in the Development of Indian Derivative Market derivations trading
commenced in India in June 2000 after SEBI granted the final
blessing to this effect in May 2000. SEBI permitted the secondary
parts of two stock exchanges, NSE and BSE, and their clearing
house/ pot to commence trading and agreement in approved
secondary contracts. The trading in indicator options commenced
in June 2001 and those in options on individual securities
commenced in July 2001. Futures contracts on individual stock
were launched in November 2001.

Table shows the sequence of events in the development of

secondary request in India.
Date Milestone Achieved
December,1 NSE asked SEBI for permission to trade
995 index futures
SEBI setup L.C.Gupta Committee to draft
November,1 a policy
framework for index futures.
996
May,1998 L. C. Gupta Committee submitted report.
RBI gave permission for OTC forward rate
July,1999 agreements
(FRAs) and interest rate swaps
SIMEX chose Nifty for trading futures and
May,2000 options on an
Indian index.
SEBI gave permission to NSE and BSE to
May,2000 do index futures trading.
June,2000 Trading of BSE Sensex futures
commenced at BSE.
June,2000 Trading of Nifty futures commenced at
NSE.
Trading of futures and options on Nifty to
August,2000 commence
SIMEX.
at

Trading of Equity Index Options at NSE

June,2001
Trading in BSE SENSEX options
commenced
July,2001 Trading of Stock Options at NSE
November,2 Trading of Single Stock futures at BSE
002
June,2003 Trading of Interest Rate Futures at NSE
September,2 Weekly Options at BSE
004
January,200 Trading of Mini Sensex at BSE
8
January,200 Trading of Mini Index Futures & Options
8 at NSE
 August,2008 Trading of Currency Futures at NSE
October,200 Trading of Currency Futures at BSE
8
August,2009 Interest rate derivatives trading
commences on the NSE
February,20 Launch of Currency Futures on additional
10 currency pairs
October,201 Introduction of European style Stock
0 Options
October,201 Introduction of Currency Options
0
September,2 Subsequent to the passing of the Finance
015 Act 2015, Forward market commission
(FMC) was merged with SEBI.
Source: Compiled from the BSE and NSE Fact Book.
India become largest derivative market by volume
India’s National stock exchange has surpassed America’s CME
Group Inc. to become the
world’s largest derivatives bourse by volume. Mumbai-based NSE
traded the most contract
in the world in 2019, the exchange said in a statement, citing data
from the Future Association.
Volume on the Indian Exchange grew 58% to about 6 billion
derivatives contracts in 2019,

Exchange 2019 Volume (Billion

Contracts)
NSE 5.96
CME GROUP 4.83
 B3 3.88
Intercontinental Exchange 2.26
Eurex 1.95
surpassing CME’s 4.83 billion, according to the FIA’s website.

1.6 Future of Secondary request in India

The FO member increased from 72,392.07 crores to crores

between 2010 and 2018. The average diurnal development in
2012- 13 was 21,705.62 crores, which fell to 16,444.73 crores
and 12,705.49 crores in 2014 and 2015. Following that, it steadily
grew from 2016, 2017 to 2018, reaching a high of 20,759.63 cr.
These figures suggest that the derivations request, as well as
investors, are on the rise. It's a huge increase and a positive
index for the Indian frugality.
The volume of trading in secondary products on the National
Stock Exchange( NSE) are indicated in the tables below

Trends in FII Derivative Trades – May 27, 2021

Daily Trends in FPI Derivative Trades on 27-May-2021

Open Interest at the
Buy Sell
Derivative end of the date.
Products No. of Amount No. of Amount No. of Amount
Contracts in Crore Contracts in Crore Contracts in Crore
Index
77287 7902.37 64855 6612.78 158612 17225.57
Futures
Index
4566032 429957.13 4522476 425730.62 1339240 140093.27
Options
Stock
Futures 393162 30237.51 402438 30943.92 1450174 111882.66
Stock
173552 14001.32 173478 14057.57 215388 16750.27
Options
Interest
Rate 0.00 0.00 0.00 0.00 0.00 0.00
Futures
The above report is compiled on the basis of reports submitted to depositories by NSE and BSE on
27-May-2021 and constitutes FPIs/FIIs trading / position of the previous trading day.
Source: www.fpi.nsdl.co.in

This the traded volume of the derivatives in India on 27th May 2021 as of the previous volumes
the derivative market in India is continuously growing. India is becoming the largest traded volume
in derivative market in the year 2019 as well. This shows a positive trend as well that in coming
years the derivative market will grow faster as expected.
 CHAPTER 2
REVIEW OF LITERATURE
Review of Literature

Ashutosh Vashishtha & Satish Kumar, examines that secondary

development has grown from 2365 crores in 2000- 01 to
Rs11010482 crores, within a short span of eight times secondary
trading in India has surpassed cash member in terms of volume
and successions.

Himanshu Barot & Dr. Nilesh B. Gajjar, examines that secondary

products serve the extremely important profitable functions of
price discovery as well as threat operation. The analysis done in
exploration paper, 25.58, 9 and 33.35 of compounding periodic
growth in terms of institutional investors, retail investors and
personal investors independently, which indicates that personal
investors are sharing more in equity derivations request followed
by institutional and retail investors. still, in personal and
institutional investors ‟ chance share in total development
increased whereas in retail investors it dropped.

Priyanka Saroha & Dr. S.K.S. Yadav, examines that derivations

help in effective capital allocation in the frugality; at the same time
their abuse also poses a trouble to the stability of the fiscal sector
and the overall frugality. Also, this paper presents accounts of the
major developments in the Indian commodity, exchange rate and
fiscal derivations requests, and outlines the nonsupervisory vittles
that have been introduced to minimize abuse of derivations.

Shree Bhagwat, Ritesh Omre & Deepak Chand, have presented

that the Launch of equity derivations in Indian request has been
extremely encouraging and successful. It has surpassed the
growth of its counterpart encyclopedically. Research sates that
global fiscal extremity has proved to be a structural break in the
fiscal outgrowth member of NSE & BSE through development
structure. Also shift in investor’s preoccupation from Single Stock
Futures contracts to Index Option contracts.
 Jency S, has studied the rising trends in Indian fiscal request.
Also countries that invention and reforms have added value to
technology, system & reduced cost of capital. The change in
functional and methodical threat operation parameters,
agreement system, exposures, counting norms are studied along
with their equality with global norms.

Pankaj Tiwari, attempts to deals with the conception, description,

appearance and types of banking derivations originally. After that
he, have displayed heat of advancement of secondary request,
adaptation & action development of request. At last, he has
bandied cachet of all- around derivations emporium adverse
Indian derivations request.

Development of fiscal derivations request in India- A Case Study.

By- Ashutosh Vashishtha & Satish Kumar

Innovation of derivations have readdressed and revolutionized

the geography of fiscal assiduity across the world and derivations
have earned a well- justified and extremely significant place
among all the fiscal products. derivations are threat operation tool
that help in effective operation of threat by colorful stakeholders.
derivations give an occasion to transfer threat, from the bone
who wish to avoid it; to one, who wish to accept it. India’s
experience with the launch of equity derivations request has been
extremely encouraging and successful. The derivations
development on the NSE has surpassed the equity request
development. Significantly, its growth in the recent times has
surpassed the growth of its counterpart encyclopedically.
The development of derivations on the NSE increased in 2007-
08. India is one of the most successful developing countries in
terms of a vibrant request for exchange- traded derivations. This
reiterates the strengths of the ultramodern development of India’s
securities requests, which are grounded on civil request access,
anonymous safe and secure electronic trading, and a generally
retail request.

part and Growth of Financial Derivative in the Indian Capital

Market.
By- Dr. Himanshu Barot & Dr. Nilesh B. Gajjar

derivations products serve the extremely important profitable

functions of price discovery as well as threat operation. The
translucency, which emerges from their trading medium, ensures
the price discovery in the underpinning request. Further, they
serve as threat operation tools by easing the trading of pitfalls
among the request actors.
The analysis done in exploration paper, 25.58, 9 and 33.35 of
compounding periodic growth in terms of institutional investors,
retail investors and personal investors independently, which
indicates that personal investors are sharing more in equity
derivations request followed by institutional and retail investors.
still, in personal and institutional investors ‟ chance share in total
development increased whereas in retail investors it dropped. But
as a logical step to the derivations member progress in the Indian
capital request, this member presents wide occasion to the
investors to get better return with barricade the portfolio and
equipped to come a dominant player in the request.

Secondary request in India Prospects & Issues.

By- Dr. Priyanka Saroha & Dr. S.K.S. Yadav
 derivations products give certain important profitable benefits
similar as threat operation or redivision of threat down from threat-
antipathetic investors towards those more willing and suitable to
bear threat. derivations also help price discovery, i.e., the process
of determining the price position for any asset grounded on force
and demand.
These functions of derivations help in effective capital allocation
in the frugality.

This paper presents accounts of the major developments in the

Indian commodity, exchange rate and fiscal derivations requests,
and outlines the nonsupervisory vittles that have been introduced
to minimize abuse of derivations. In the medial- 1990s India
started reviving the exchange traded commodity derivations
request and introduced a variety of instruments in the foreign
exchange derivations request, while exchange traded fiscal
derivations were introduced in 2001.
Overall, it was set up from the exploration paper that in the early
times of the equity derivations request there was a degree of
attention in the request and consequent lack of range and depth
across parts.
Development of fiscal derivations request in India and its Position
in

Global Financial Crisis.

By- Dr. Shree Bhagwat, Ritesh Omre & Deepak Chand

Financial derivations have earned a well- justified and extremely

significant place among all the fiscal instruments( products), due
to invention and revolutionized the geography. derivations are tool
for managing threat. derivations give an occasion to transfer
threat from one to another. Launch of equity derivations in Indian
request has been extremely encouraging and successful. The
growth of derivations in the recent times has surpassed the
growth of its counterpart encyclopedically. The equity derivations
request is playing a major part in shaping price discovery.
Volatility in fiscal asset price, integration of fiscal request
internationally, sophisticated threat operation tools, inventions in
fiscal engineering and choices at threat operation strategies have
been driving the growth of fiscal derivations worldwide, also in
India. From paper we can say there's big significance and
donation of derivations to fiscal system. The global fiscal
extremity has proved to be a structural break in the fiscal
outgrowth Ssegment of NSE & BSE. As has been reflected by the
analysis, the development structure of NSE & BSE of India, the
exchange with dominating position in India, has shown that the
derivations trading has been a substantial & significant element of
Indian stock request. Within this member, the investors have been
spotted with their preoccupation with Single Stock Futures
contracts in the pre global fiscal extremity period. This
preoccupation has now been altered in thepost-crisis period.
still, the preoccupation is now with the Index Option contracts.
still, with similar preference for Index grounded secondary
products, studies fastening on the commerce of derivations
trading with spot request on aspects of lead- pause relationship,
impact on liquidity, transfer of trading, etc. can now be justified to
come up with robust conclusions. similar studies have been
inconclusive so far in Indian surrounds.
nonetheless, such a slanted preference is n't desirable situation
for an arising frugality like India. Reasonable blend of the
secondary products should give a better volition to the investors
by supplementing the avenues for investment and threat
operation with the growing maturity of India’s derivations request.

Trends of Capital Market in India.

By- Jency S

India being an arising frugality needs inventions and reforms in

the fiscal request. Innovation and reforms not only add value in
the being technology and system but also lead to drop in the cost
of capital and alleviate the threat exposure of the capital request
instruments. There has been a revolutionary change over a period
of time. In fact, on nearly all the functional and methodical threat
operation parameters, agreement system, exposures, counting
norms, the Indian Capital Market is at par with the global norms.
The thing of SEBI is to make request competitive, transparent and
effective. A 96 perception is steadily growing about the Indian
Capital Market, as a dynamic request, among the International
community.

Assessing the Expansion of fiscal derivations in India.

By- Pankaj Tiwari

Innovation of derivations acquire readdressed and revolutionized

the tempera of banking assiduity beyond the apple and
derivations acquire getting an suitable- bodied acclimated and
acutely forceful residence a part of all the banking products.
derivations are accident administration outfit that advice in
suitable administration of accident by varied stakeholders.
derivations accommodate a befalling to revision threat, from the
bone who ambition to hesitate it; to one, who ambition to acquire
it. India’s familiarity with the shower of disinterestedness
derivations emporium has been acutely auspicious and
successful. The derivations about- face on the NSE has
surpassed the disinterestedness emporium development.
Significantly, its advance in the disdain times has surpassed the
advance of its analogue encyclopedically.

India is one of the lots of conceded developing countries in

agreement of an active emporium for exchange- traded
derivations. This reiterates the strengths of the avant- garde
development of India’s balance requests, which are grounded on
communal emporium access, defying safe and defended cyber
banking trading, and a generally retail request. There's an
accretion faculty that the disinterestedness derivations emporium
is arena a below part in abstraction quantum discovery. Factors
like added vitality in banking asset prices; growing cooperation of
communal banking requests with all- embracing requests;
development of added adult accident administration tools added
choices of accident administration strategies to chuck - and-
adulation agents and inventions in banking engineering, acquire
been active the advance of banking derivations common and
acquire as well fueled the advance of derivations then, in India.
There's no bigger way to punctuate the connotation and addition
of derivations but the commentary of the longest confined
Governor of Federal Reserve, Alan Greenspan “ Although the
allowances and costs of derivations abide the responsible of
active debate, the achievement of the digest and the banking
arrangement in disdain times suggests that those allowances
acquire materially exceeded the costs."
 CHAPTER 3
RESEARCH METHODOLOGY
3.1 Purpose of Study

Since a considerable time has passed( since time 2000) after the
preface of the secondary instruments in Indian fiscal system, this
study attempts to know the different types of derivations and also
to know the secondary request in India and the future of
derivations in India as well. This study also covers the recent
developments in the secondary request taking into account the
trading in once times. Through this study I came to know the
trading done in derivations and their use in the stock requests.
The exploration would involve study of how derivations vend
evolved
and its growth from commencement.

To know different types of derivations instruments.

a) In terms of Development
b) In terms of Traded Quantity
c) In terms of No of Contracts Traded

The introductory idea behind undertaking derivations request

design to gain knowledge about future of secondary request.

A) Primary ideal-

• To dissect the performance of derivations Trading since 2000

with special reference to Futures & Options.

• To dissect investors perception towards investment in

secondary request.

B) Secondary objects-

• To understand the conception of the derivations and Secondary

Trading.
• To know different types of Financial derivations.

• To know the Future of derivations in India.

compass of the Project
The design covers the derivations request and its instruments.
For better understanding colorful strategies with different
situations and conduct have been given. It includes the data
collected in the recent times and also the request in the
derivations in the recent times. This study extends to the trading
of derivations done in the National Stock Markets.
Administrative SUMMARY

originally, I'm briefing the current Secondary request and

comparing it with it once and about the future of the secondary
request in India. also at the last I'm giving my suggestions and
recommendations.
derivations trading in the stock request have been a subject of
enthusiasm of exploration in the field of finance the most asked
instruments that allow request actors to manage threat in the
ultramodern securities trading are known as derivations. The
derivations are defined as the unborn contracts whose value
depends upon the underpinning assets.However, the beginning
asset may be anything as element of stock request like, stock
prices or request indicators, If derivations are introduced in the
stock request. The main sense behind derivations trading is that
derivations reduce the threat by furnishing an fresh channel to
invest with lower trading cost and it facilitates the investors to
extend their agreement through the unborn contracts. It provides
redundant liquidity in the stock request.derivations are means,
which decide their values from an beginning asset. These
underpinning means are of colorful orders like

• Goods including grains, coffee sap, etc.

• Precious essence like gold and tableware.

• Foreign exchange rate.

• Bonds of different types, including medium to long- term

negotiable debt securities issued by governments, companies,
etc.

• Short- term debt securities similar as T- bills.

•Over-The-Counter( OTC) plutocrat request products similar as

loans or deposits.

• Equities
For illustration, a bone
forward is a secondary contract, which gives the buyer a right &
an obligation to buy bones at some future date. The prices of the
derivations are driven by the spot prices of these underpinning
means. still, the most important use of derivations is in
transferring request threat, called Hedging, which is a protection
against losses performing from unlooked-for price or volatility
changes. therefore, derivations are a veritably important tool of
threat operation.

There are colorful secondary products traded. They are;

1. On
2. Futures
3. Options
4. Swaps

“ A Forward Contract is a sale in which the buyer and the

dealer agree upon a delivery of a specific quality and volume
of asset generally a commodity at a specified future date. The
price may be agreed on in advance or in future. ”
 “ A unborn contract is a establishment contractual agreement
between a buyer and dealer for a specified as on a fixed date
in future. The contract price will vary according to the request
place but it's fixed when the trade is made. The contract also
has a standard specification so both parties know exactly
what's being done ”.

“ An Options contract confers the right but not the obligation to

buy( call option) or sell( put option) a specified underpinning
instrument or asset at a specified price – the Strike or Exercised
price up until or a specified future date – the Expiry date. The
Price is called Premium and is paid by buyer of the option to the
dealer or pen of the option.

” A call option gives the holder the right to buy an beginning

asset by a certain date for a certain price. The dealer is under an
obligation to fulfill the contract and is paid a price of this, which is
called" the call option decoration or call option price".

A put option, on the other hand gives the holder the right to vend
an beginning asset by a certain date for a certain price. The buyer
is under an obligation to fulfill the contract and is paid a price for
this, which is called" the put option decoration or put option
price".“ barters are deals which obligates the two parties to the
contract to change a series of cash overflows at specified
intervals known as payment or agreement dates. They can be
regarded as portfolios of forward's contracts. A contract whereby
two parties agree to change( exchange) payments, grounded on
some ideational star quantum is called as a “ exchange ‟. In case
of exchange, only the payment overflows are changed and not the
top quantum ”. The future of the secondary request in India is
growing fleetly as further and further investors are investing. In
the coming future the diurnal volume traded will record a new
high. As per the once trends as well we've seen that there's a
huge growth in the secondary request in India and in the coming
times as well the trends will follow and grow.

Methodology

The primary sources of collection of the data would be from

general investors( scholars, individualities working in fiscal
request, professionals, Business Individual).
The exploration would include primarily the study of being
different type of secondary product, history of derivations in India
& Development of secondary request.

Study the pace at which the trading in different contract’s

increased whit statistical data present at NSE, BSE & SEBI
website.
Studying the investor’s perception towards derivations trading &
Secondary request. Descriptive and Exploratory exploration
styles are used to gather and dissect data. Exploratory
exploration would calculate on collection of data through
secondary exploration similar as reviewing available literature
and/ or data, or qualitative approaches similar as informal
conversations with repliers( then brokers, investors &
professionals) Internet exploration styles like posting of
questionnaire through Google support would be used to reach
replier. The results of exploratory exploration would give
significant sapience into a given situation or conception.

Tools

The information for the exploration would be collected through

following modes

Primary Data

Primary data was collected through a structured questionnaire.

The
Questionnaire was distributed through online tool using Google
Forms.

Secondary Data

Written Material on derivations available in Books, on Internet and

exploration Papers. Statistical Data of secondary trading
available on NSE, BSE & SEBI website.

Design of Questionnaire

Questionnaires were designed to seek responses from the

different investor/ dealer in the secondary request. It's attached as
annexure.
Limitation of the study The time available to conduct the study
was only 2 months. Being a wide content, I had a limited time.
The primary data has been collected through a structured
questionnaire to a sample of 100 investors, which may not reflect
the opinion of the entire population. dimension ways Used

CHI SQUARE test is used for testing the thesis

Collection of Primary Data

Primary data was collected through a structured questionnaire.

The questionnaire was circulated to the Graduate andPost-
Graduation scholars, request Players( dealers), Investors,
Businessman’s, Professional. It includes combination of picky and
scaly questions. It also includes combination of open- concluded
questions. Likert Scale was used to collect responses from the
repliers.

Collection of Secondary Data

Secondary data was collected through journals of NSE( Market
Plus, Indian Securities Market A Review).

Also book on content for Secondary requests to understand

different conception of derivates.

Also, statistical data was collected form NSE, BSE, SEBI, RBI &
NSDL website.

Modules handed by NSE are used in order to understand the

derivations products in details along with back- end process.

thesis of the Study

H0 Income and investment in secondary instruments are n't
related.
H1 Income and investment in secondary instruments are related.

H0 Age and purpose of Investing in Secondary request are n't

related. H1 Age and purpose of Investing in Secondary request
are related.

H0 threat taking Strategy and Rate of Return are no affiliated.

H1 threat taking Strategy and Rate of Return are related.
CHAPTER 4
DATA ANALYSIS, INTERPRETATION
AND PRESENTATION
4.1 Growth of Derivative Market through Secondary
Year total No. of Total Average daily
contract turnover turnover (in . Cr.)
(in Cr.)

2017-18 189654835 163539816.1 678588.45

1 2
2016-17 139974612 94370301.61 389959.92
9
2015-16 209861039 64825834.30 267875.34
5
2014-15 183704113 55606453.39 233640.56
1
2013-14 128442432 38211408.05 155557.68
1
2012-13 113146741 31533003.96 126638.57
8
2011-12 120504546 31349731.74 125902.54
4
2010-11 103421206 29248221.09 115150.48
2

2009-10 679293922 17663664.57 72392.07

Data.
 Source: Compiled from NSE website.

800000

700000

600000

500000

400000
Series 1

200000

100000

2017-18 2016-17 2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10

The below map depicts nonstop growth in secondary request in

FO member. From time 2010 to 2018 which increase 72392.07 cr.
to 678588.45 cr. It's a tremendous growth and good sign for
Indian frugality.

4.1.1 Chart showing comparison of Derivatives

Contract Traded and Equity Traded
in BSE
 25,000
20,000
15,000
10,000

5,000
0

4.1.2Chart showing comparison of Derivatives

Turnover and Equity Turnover in BSE

2,000,000.00
1,500,000.00
1,000,000.00
500,000.00
0.00

Total Derivative Turnover in (Rs. Ten Thousand) Total

Equity Turnover in (Rs. Ten Thousand)

The below charts represent the Development & Contracts traded

at BSE exchange. From the chart we are suitable to see that
there is high increase in the volume of the contract traded in
exchange from 1.43 Lakh in 2003- 04 to 4300.58 Lakh in 2017-
18( till November 23rd). Also, there was a new high where
8,166.88 Lakh contracts were traded in time 2014- 15and saw an
increase of 139. The amount of development is also increased by
13 averagely.

The below Map represent that there is steady increase in Volume

and contracts traded at BSE exchange.
4.1.3Chart showing comparison of Derivatives Contract
Traded and Equity Traded in NSE

30,000
25,000
20,000
15,000
10,000
5,000
0

4.1.4 Chart showing comparison of Derivatives

Turnover and Equity Turnover in NSE
1,200
1,000
800
600
400
200
0

1. Gender Participation in Research Data Collection.

Gender Freque Percent

ncy
 Fem 09 7.76
ale %
Male 107 92.24%
Grand 116 100.00%
Total

Frequency

8%

Female
Male

92%

Interpretation: From the questionnaire it is observed that

92% of the respondents are Male and 8% of them are
Female.

2. Occupation of the respondents

Occupat Freque Perce

ion ncy nt
Business 19 16.38
%
Professi 17 14.66
onal %
 Salaried 69 59.48
%
Student 11 9.48%
Grand 116 100.0
Total 0%
Frequency

9% 16%
Business
Professional
15%
Salaried
Student
60%

Interpretation: From the questionnaire it is observed that

92% of the respondents are Male and 8% of them are
Female.

3. Annual Income of the respondents

Income Slab Freque Perce

ncy nt
Up to Rs. 1 lac 15 12.93
%
Rs. 1 lacs to Rs. 5 lacs 33 28.45
%
Rs. 5 lacs to Rs. 10 lacs 30 25.86
%
 Rs. 10 lacs Rs. 15 lacs 13 11.21
%
Rs. 15 lacs Rs. 25 lacs 13 11.21
%
Above Rs. 25 lacs 12 10.34
%
Grand Total 116 100.0
0%

Frequency

Up to Rs. 1 lac Rs. 1 lacs to Rs. 5 lacs Rs. 5 lacs to Rs. 10 lacs
Rs. 10 lacs Rs. 15 lacs Rs. 15 lacs Rs. 25 lacs Above Rs. 25 lacs

Interpretation 13 of the repliers have periodic income of over to

Rs. 1 Lacs, were as repliers having income above from l lacs to 5
lacs are 29, between 5 lacs to 10 Lac are 26, between 10 lacs to
15 Lac & between 15 lacs to 25 Lac are 11 each & Above 25
Lacs are 10.
It states that maturity of replier income is between Rs. 1 lac to Rs.
10 lacs account to 54 to total population.
4. Respondent’s Preferred period of investment

Term Frequenc Percent

y
Long Term (More than 5 years) 48 41.38%

Medium Term ( 1-5 years) 52 44.83%

Short Term (Less than 1 year) 16 13.79%

Grand Total 116 100.00%

Frequency

14%

Long Term (More than 5 years)

41%
Medium Term ( 1-5 years)
Short Term (Less than 1 year)
45%
 Frequenc Percent
y

Yes 43 37.07%

Do not invest due to lack of knowledge of derivatives 28 24.14%

Do not invest since I consider investing in derivatives 45 38.79%

is risky

Grand Total 116 100.00

%

Interpretation 45 of the repliers have Medium Term( 1 time to 5

time) preference of period of investment, where 41 of the repliers
have Long Term( further than 5 time) preference of period of
investment & only 14 prefer Short term that's lower than 1 time.
This denotes that repliers prefer investing their plutocrat for
further than 1 time.
5. Respondent of Total sample invest in Derivative Markets
 Yes
Do not invest due to lack of knowledge of derivatives
Do not invest since I consider investing in derivatives is risky

Interpretation The below map represents the total chance of

sample who invests in secondary request. From the sample 37
replier invest in secondary request, where 63 do not. From 63 of
replier 24 do n't invest in derivations because of lack of
knowledge & others 39 do n't because they find secondary
parlous.
6. Age of the respondents Trading in Derivative Markets

Age Freq Per

uenc cen
y t
18 - 25 13 30.2
Years 3%

26 - 35 15 34.8
Years 8%

36 - 45 7 16.2
Years 8%

45 - 60 8 18.6
Years 0%

Above 0 0.0
60 Years %

Grand 43 100
Total .00
%
 Frequency

18 - 25 Years 26 - 35 Years 36 - 45 Years

45 - 60 Years Above 60 Years

Interpretation 30.23 of the repliers fall under the age order of

18 – 25 times, 34.88 of them fall under 26- 35 times were as
16.28 of the repliers are between the age order of 36- 45 times
and 18.60 of the repliers are Between the age group of 45 – 60
times.
This shows that the participation of youthful people geriatric
between 18 to 35 times is loftiest and makes up 65.12 of the
total population investing in derivations.
Respondents preferred Risk Taking strategy in
Derivative market

Pattern Frequency Percent

High Risk 5 11.63%
Low Risk 5 11.63%
Moderate Risk 33 76.74%
Grand Total 116 100.00%
 Frequency

11%
High Risk
12%
Low Risk
Moderate Risk
77%

Interpretation 77 of the replier who invest in

secondary approach for Moderate threat- taking
strategy. Whereas 11 & 12 of replier approach
for High threat and Low threat independently.

Risk which is of most concern in the

equity derivative market to respondents.
Risk Freque Percen
ncy t
Behavioral 1 2.33%
Legal Risk 1 2.33%
Liquidity Risk 2 4.65%
Market Risk/Price risk/Potential Loss 31 72.09%
Risk
Settlement risk 1 2.33%
Systematic risk 7 16.28%
Grand Total 43 100.00
%
 Frequency

Behavioral Legal Risk

Liquidity Risk Market Risk/Price risk/Potential Loss Risk
Settlement risk Systematic risk

Interpretation 72 of the repliers who invest in secondary

discovery request threat as concerning. 16 of the replier
who invest in secondary discovery Methodical threat
concerning. Other threat account for 12 which concern
repliers who invest in secondary request.

7. Derivative Trading has resulted in exposure to high risk.

Freque Perc
ncy ent
Agree 17 39.53
%
Disagree 5 11.63
%
Neutral 13 30.23
%
Strongly 7 16.28
agree %
Strongly 1 2.33
disagree %
Interpretation 24 repliers have agreed that Secondary Trading has
redounded in exposure to high threat, where 13 have neutral view
about it, and 6 have dissented to it.
So, it can be understood that as per map that Derivative Trading
has redounded in exposure to high threat.
8. Characterizing respondent trading activity in
the equity derivatives segment.
Trading Activity Freque Perc
ncy ent
Arbitrag 3 6.98
e %
Hedgin 11 25.58
g %
Specula 28 65.12
tion %
Strategy Trading 1 2.33
%
 FREQUENCY
Strategy
Trading Arbitrage

Hedging

Speculation

Interpretation 65.00( 28 repliers) are using outgrowth for

academic purpose where as 25.58( 11 repliers) are using it
for hedging purpose.
This makes sure that the derivations products are used for
academic or hedging purpose, where arbitraging is done at
fairly low position.

Respondent preference to the type product in Equity

Derivatives.

Product Freque Perc

ncy ent
Currency 1 2.33
forwards %
Index 19 44.19
Futures %
Index 28 65.12
Options %
Stock 19 44.19
Futures %
Stock 22 51.16
Options %
 Frequency

Stock Options

Stock Futures

Index Options

Index Futures

Currency forwards

0 5 10 15 20 25 30

Interpretation: Among 43 respondents who invest in

derivatives 1 respondent invest in Currency Forwards
Contracts, 22 respondents invest in Stock Option
Contracts, 19 respondents invest in Stock Future
Contracts, 28 respondents invest in Index Option
Contracts, 19 respondents invest in Index Future
Contracts.

The most famous products where investors invest are

Index Option Contracts, Stock Option Contracts, Index
Future Contracts & Stock Future Contracts.

4.3 Hypothesis Testing

 4.3.1 Comparing Income and Investment in Derivative
market.

H0: Income and investment in derivative

instruments are not related. H1: Income and
investment in derivative instruments are
related.

Annual Income of Respondent * Type of product in Equity

Derivatives respondent invest.

Type of product in Equity

COU Derivatives respondent invests.
NT Curr Inde Inde Sto Stoc
ency x x ck k To
forw Fut Opti Fut Opti tal
ards ures ons ures ons
up 0 10 0 2 1 13
to
Rs.
1 lac
Rs. 1
lac 0 13 5 1 1 20
to
Rs.
5
Annua lacs
l
Rs.
Incom 0 15 7 2 1 25
5
e of
lacs
Respo to
ndent Rs.
10
lacs
Rs.
1 lac 1 0 4 2 0 7
to
Rs.
15
lacs
Rs.
15 0 15 0 1 1 17
lac
to
Rs.
25
lacs
Abo
ve 0 4 1 0 2 7
Rs.
25
Lacs
1 57 17 8 6 89
Tota
l

Chi-square: 41.321

degrees of freedom: 20

p-value: 0.00338716
The value of chi-squared statistic is 41.321. The chi-squared
statistic has 10 degree of freedom. The p value (.003) is less
than 0.05. Hence there is significant relationship between
income and investment in different type of derivative
instruments.

4.3.2 Comparing Age and purpose of Investing in Derivative

market

H0: Age and purpose of Investing in Derivative

market are not related. H1: Age and purpose
of Investing in Derivative market are related.

Age of Respondent * Purpose of Investing in Derivative

market

Purpose of Investing in
Derivative market
Cou Grand
nt Arbitra Hedgi Specula Strate Total
ge ng tion gy
18 - 25
Years 2 5 6 0 13
26 - 35
Years 0 2 13 0 15
Age 36 - 45
Years 0 2 5 0 7
 of 45 - 60
Years 1 2 4 1 8
Respon
dent
Grand Total 3 11 28 1 43

Chi-square: 11.436
degrees of freedom: 9
p-value: 0.247

The value of chi-squared statistic is 11.436. The chi-squared

statistic has 9 degree of freedom. The p value (.247) is more
than 0.05. Hence there is not a significant relationship
between age and purpose of Investing in Derivative market.
4.3.3. Comparing Risk taking Strategy and Rate of
Return

H0: Risk taking Strategy and Rate of

Return are no related. H1: Risk taking
Strategy and Rate of Return are
related.

Risk taking Strategy * Rate of Returns

Respondents preferred Risk

Taking strategy in
Cou Derivative market
High Low Grand
nt Moderate
Risk Risk Total
Risk
Less than 0 1 2 3
12%
Rate 12% - 2 1 26 29
24%
of 24% - 1 2 3 6
36%
Retu 36% & 2 1 2 5
above
rn
Grand Total 5 5 33 43

Chi-square: 12.225
degrees of freedom: 6
p-value: 0.057
The value of chi-squared statistic is 12.225. The chi-squared
statistic has 6 degree of freedom. The p value (0.057) is
more than 0.05. Hence there is marginal significant
relationship between Rate of Return and Preferred risk-
taking strategy in Derivative market.
 CHAPTER 5
FINDINGS & RECOMMENDATIONS
5. FINDINGS & RECOMMENDATIONS

Chancing for Growth of Derivative Market in India

There's substantial growth in the development and contract
traded in NSE and BSE, which represent the tremendous growth
in Secondary trading in India. Also, the view of replier is that the
secondary request has grown at fast pace from time 2003.

Chancing for Investors Perception on Derivative Market in India

of the repliers are manly and 7.76 of them are womanish. 54 of
replier fall under age group of 18- 35. 37 replier invests in
secondary request, where 63 do not. From 63 of replier 24 do n't
invest in derivations because of lack of knowledge & others 39 do
n't because they find secondary parlous. 33 replier investing in
Derivative Market are from the age group of 26- 35 times & 31
from 18- 25 times age group. Investors prefer moderate threat-
taking strategy while investing in derivations. request threat/
Price threat/ Implicit Loss threat concerns the investor most.
Investor prefers to invest in Equity & Index Contract, also
commodity or currency contracts. Index Options are the preferred
by investor in order to trade in Derivative Markets following by
Stocks
Options.

Investors prefer contracts expiring in 1 month than going for far

maturity date contracts. 56 of repliers believe that Secondary
Trading has redounded in exposure to high threat. maturity of
Respondent’s state’s that they trade in derivations for enterprise
purpose. shy understanding on the Use of secondary instruments
is the factor that can lead to fiscal heads as per views of replier.
thesis test shown that there's relationship Income and Investment
in Secondary request, threat taking Strategy and Rate of Return.
Whereas, there is n't a significant relationship between age and
purpose of Investing in Secondary request.
Recommendations

Knowledge needs to be spread concerning the threat and return

of secondary request. Investors should have knowledge of
specialized analysis, especially 5 Day moving pars as derivations
trading is for a short period of time Investors should analysis their
script with the help of 5 Day moving normal before making their
trades.

Investors „ portfolio should only correspond of 15 – 20 derivations

contracts or scripts.

As derivations trading is veritably parlous investors should have

only a small portion of their portfolio conforming of derivations.

SEBI should conduct forums regarding the use of derivations to

educate individual investors.

As FII play a prominent part in derivations trading, an individual

investor should keep himself streamlined with colorful profitable
trends, government programs, company & assiduity adverts
CHAPTER 6
Bibliography
BIBLIOGRAPHY

Websites
www.nse-india.com www.bseindia.com www.sebi.gov.in

Research Paper
Ashutosh Vashishtha and Satish Kumar “ Development of fiscal
derivations request in India- A Case Study ” Himanshu Barot' part
and Growth of Financial Derivative' Priyanka Saroha' Secondary
request in India Prospects Issues' Shree Bhagwat1, Ritesh Omre,
Deepak Chand “ Development- of-fiscal- derivations- request- in-
India- and- its- Position- in- Global- Financial- Crisis ” Jency S'
Trends of Capital Market in India' Pankaj Tiwari' Assessing the
Expansion of Financial'
Snehal Bandivadekar and Saurabh Ghosh “ derivations and
Volatility on Indian Stock Markets ” Books & Reports

Market Plus( NSE yearly Report) Indian Security request A

Review
 Option Future and other derivations by John C housing
derivations FAQ by Ajay Shah

NCFM Modules Currency derivations A Beginner's Module.

NCFM Modules Equity derivations A Beginner's Module.
Financial Markets & Services by Gordan & Natrajan.
“ Investment Analysis and Portfolio Management ”, Second
Edition- Prasanna Chandra NSE Annual Report 2019- 2020.
 CHAPTER 7
ANNEXURE ( QUESTIONER)
ANNEXURE

I'm conducting a check to study standpoint of replier on

derivations request in India. Please help me by filling this doubter.
This check includes some introductory question about your
investment perspective and investment pattern in secondary
request. This check wo n't take further than 10 twinkles of you
precious time. Your responses will be kept nonpublic, & will be
used only for an academic exploration work purpose.

Name of the Investor,

Q1. GENDER
• manly
• womanish

Q2 Please enter the occupation details?

• Salaried
• Professional
• Business
• Retired

Q3 What's the Annual Income Range you fall in?

• Up to Rs. 1 Lacs
• Rs. Rs. Lacs
• Rs. Rs. Lacs
• Rs. Rs. Lacs
• Rs. Rs. Lacs
• Above 25 Lacs

Q4 Preferred Period of Investment?

• Long Term( further Than 5 Times)
• Medium Term( 1 – 5 Times)
• Short Term( Less Than 1 time)
Q5. Do You Invest in Derivative requests?
• Yes
• Do n't invest since I consider investing in outgrowth is parlous.
• Do n't invest due to lack of knowledge of derivations.

Q6 Age *
• 18- 25
• 26- 35
• 36- 45
• 45 – 60
• Above 60 Times

Q7 Your preferred threat- Taking strategy in secondary request?

• Low threat
• High threat
• Moderate threat

Q8 Which threat is most concern in the equity secondary request

to you moment?
• Behavioral
• Legal threat
• Liquidity threat
• request threat/ Price threat/ Implicit Loss threat
• agreement threat
• Methodical threat

Q9 Secondary Trading has redounded in exposure to high threat?

• Agree
• Differ
• Neutral
• explosively Agree
• explosively Differ

Q10 Which of the following characterizes your trading exertion in

the equity
secondary member?
• Hedging
• enterprise
• Arbitrage
• Other