Understanding Derivatives Trading | Edelweiss Wealth Management

💰 Derivatives are financial contracts that derive their value from underlying assets like stocks, bonds, currencies, commodities, and indices.

📉 The value of the underlying asset in derivatives contracts fluctuates according to market conditions.

🌾 Derivatives can be used to manage risk, such as a farmer using a contract to sell wheat at a specific price to protect against price drops due to weather conditions.

📉 In a derivative contract example, a farmer ends up losing rupees 20 per quintile due to a rise in the market price of wheat.

💰 There are four major types of derivative contracts: forwards, futures, options, and source.

📅 Forwards and futures are financial contracts that obligate the buyer to purchase an asset at a pre-agreed price on a specified future date.

📊 Futures and forwards have key differences in where they are traded.

💰 Options give the buyer the right to buy or sell an asset at a predetermined price.

🔄 Swaps allow the exchange of cash flows between two parties.

📊 Mark-to-market involves recording the price of a security to reflect the current market value.

🛡️ Derivative trading is primarily used for hedging risk by linking the value of derivatives to the value of the underlying asset.

🔍 Spot derivatives help in determining the price of the underlying asset.

📊 Derivatives market helps determine the price of underlying assets.

💰 Derivative trading offers higher returns but comes with high volatility and risks.

🔍 Derivatives are widely regarded as speculative and require experience.

📊 Derivatives trading can offer great benefits with enough experience and knowledge.

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