Do you know that most of the trading is in derivatives in the world?
Do you know that the world’s best traders trade in derivatives?
So what are derivatives?
How many types does it have?
And is it right to trade in derivatives?
Today we will learn the answers to all these questions in this Post.
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Let’s go to the first question,
what are derivatives?
Friends, derivatives means something that comes from something else.
Or based on something else. And what a derivative is based on is called the Underlying Asset or simply Underlying of the derivative.
And friends, the price of each derivative depends on its underlying asset. If the price of the underlying asset value increases,
then the price of the derivatives based on it will also increase. And if the price of the underlying asset value decreases, then the price of the derivatives based on it will also decrease.
For example, we know that sugar comes from sugarcane. So we will say that sugar is a derivative of sugarcane here. And sugarcane is the underlying asset of sugar here.
And when the price of sugarcane increases the price of sugar in market also increases. And when the price of sugarcane is low, the price of sugar in the market is also low.
Similarly, there are Financial Derivatives in the stock market. Whose underlying asset are
stocks, index, currency, or commodity. And as the price of all these underlying assets changes,
the prices of derivatives based on them also change. Let’s go to the second question.
How many types of derivatives are there. Friends derivatives have mainly 4 types.
We call these as Forward, Future, Option, and Swap. We have made a video on these four types of
derivatives trading in detail.
you must see them. Friends, we saw in the trading post that if we buy or sell a company’s stock,
we call it stock trading. But if we don’t buy a company’s stock, instead, buy any derivatives based on the same stock.
Then we will say that we have not traded on the stock but we did trading in derivatives based on that stock.
For example, if we don’t buy Infosys stock and buy Infosys future based on it,
then we will say that we have done future trading in Infosys. Similarly, if we do not buy the stock of Infosys
and buy the option of Infosys based on it, then we will say that we have traded options in Infosys.
Friends, now we have come to our last Point. Is it right to trade in derivatives?
Friends, it is a bit difficult to answer this question correctly. Because it depends on person to person.
Most long term investors who want to earn money in the long term do little to no derivatives trading. But if we talk about the traders who want to earn big profits in the short term, for them, derivative trading is very important.
And there are many traders who trade only in derivatives.
So friends, it is up to you which of these methods you choose. And you choose the way through which you are able to make money easily.
So friends, this was our today’s post on derivatives. In this we learned what are derivatives?
How many types does it have? And is it right to trade in derivatives? If you liked this post, please press the bell button and if you have any question , then write it in the comment box below.
Thanks you guys, see you now in the next post.
Take care.