If you are investing in any particular equity, you will definitely think about returns but you will also ponder upon how much risk I am taking? 

Risk in the stock market is variation in the expected returns by some unknown factors. 

Now, what will you do if someone says that this road is an accident zone and this is the only particular road for your destination to reach? Will you stop driving?? absolutely not. Instead of it you will take every precaution. Now, what precautions will you take while investing in the stock market?

The answer is “Derivatives”

A derivative contract is an offset investment made by an investor to reduce the risk in the money market. Derivatives have been used as a protection/Insurance in one or the other forms since 1875 in India. 

In the year 1998, derivatives got the legal status of securities.

There are 4 types of derivatives

1) Forward
2) Futures
3) Options
4) Swaps

Among the above four versions, futures and options are most prevalent in India. Derivatives are just like having an insurance policy, whenever you face any damages/losses , you will be insured from that particular loss/damage.

So be ready for the next post in which we will discuss how futures and options work.

Happy Investing!