What is a Derivative

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What is a Derivative



A derivative is a financial contract whose value is based on (or derived from) the price of another asset like stocks, commodities, currencies, or indices.

Types of Derivatives in India:

Futures – Agreement to buy or sell at a fixed price on a future date.
Example: You agree to buy Reliance shares at ₹2,500 next month, no matter what the price is then.

Options – Right (but not obligation) to buy or sell at a set price in future.
Example: You pay a small fee (premium) today to get the right to buy Infosys at ₹1,600 even if the market price goes up.

Forwards – Like futures, but more flexible and private deals (not traded on exchanges).

 Less common in retail trading.

Swaps – Used mostly by big institutions to exchange interest rates, currencies, etc.
 Rare in stock markets for regular traders.


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