Derivative in india final
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The document discusses derivatives trading in India. It provides an overview of why derivatives were introduced in India, including to integrate domestic and international markets and develop risk management tools. It also covers the origins of derivatives, types of markets (spot and derivatives), key derivative products like futures, forwards and options, as well as terminology used in derivatives trading.
Derivative in india final
- 2. Why Derivatives in India Integration of Increased volatility National & in asset prices International Market Development of Low Transaction Risk Management Cost of Trading Tools Professional Training Academy 2
- 3. Origin • First introduced in Chicago Board of Trade in 1848 for forward contract in 1. Commodities • Derivative Introduce in Indian Stock Exchanges in June 2000 2. Professional Training Academy 3
- 4. Derivatives Trading on Exchanges Index Index Futures Options Stock Stock Futures Options Professional Training Academy 4
- 5. Business Growth of F&O Segment in India Professional Training Academy 5
- 6. Types of Market Spot Market Derivative Market Professional Training Academy 6
- 7. Spot Market Assets Class Delivery Immediate Delivery Equity Shares Commodity Physical Immediate Payment Currency Physical Professional Training Academy 7
- 8. Derivative Market Forward Segment Future Segment Options Segment Professional Training Academy 8
- 9. Forwards Transaction Two Private Contact at Expiry Parties Date Physical / (Forward Cash Price) Settlement Professional Training Academy 9
- 10. Participants in Forward Contract Money Delivery of Asset Buyer Seller (Who takes a (Who takes a long position) short position ) Professional Training Academy 10
- 11. Future Contract Between Two Parties Traded in Recognized Stock Exchange Future Date Price Agreed Upon Today Professional Training Academy 11
- 12. Participants in Futures Contract Payment Sell Contract Buy Contract Payment Clearing Future Seller Future Buyer Corporation Professional Training Academy 12
- 13. Positions in a Futures Contract • When a person buy a Long futures contract • When a person sell a Short futures contract Professional Training Academy 13
- 14. Difference Between Future & Forward Forward Future Nature of Contracts Customized Standardized Counterparty Any Party Clearing Corporation Credit Risk Exist No Risk Liquidity Very Low Very High Margins Not Required Received / Paid on Daily Basis Valuation Not Done Daily Basis Delivery Professional Training Academy Physical / Cash No Delivery 14
- 15. Options A contract between two parties Where Buyer of the option has the right and not obligation to fulfill the contract Seller is under obligation to fulfill the Contract Professional Training Academy 15
- 16. Types of Options Call Option Options Put Option Professional Training Academy 16
- 17. Call Options Right to Buy Professional Training Academy 17
- 18. Put Options Right to Sell Professional Training Academy 18
- 19. Factors impacting Option Prices Underlying Time to Strike Price Price Expiration Risk Free Rate Volatility Professional Training Academy 19
- 20. Derivative Terminology Lot Size Expiry Date Contract Size Spot Price Strike Price Initial Margin Mark to Option Market Closing Price Premium Margin Professional Training Academy 20
- 21. Contact Specification S. no Terminology Remark Index Future Index Option (Nifty) (Nifty) 1 Lot Size Minimum Quantity traded 50 50 in a lot decided by the exchanges 2 Spot Price Price prevailing in 5500 5500 delivery market 3 Future/Strike Price Prevailing in future 5550 5550 Price market/price for which call or put option exercise 4 Option Premium Amount decided by the 100 exchange on the basis of strike price and spot price 5 Expiry Date Last Thursday of a month Last Thursday Last Thursday 6 Contract Next Three Month Feb, March, April Feb, March, April Professional Training Academy 21
- 22. Contact Specification S. no Terminology Remark Index Future Index Option (Nifty) (Nifty) 7 Initial Margin Minimum amount Rs 69,375 required to make position (25% of (Suppose 25% of contract 2,77,500) Size) Option Premium * Lot Rs 5,000 Size (100*50) 8 Closing Price Closing Price at the end of 5500 day 9 Mark to Market Difference between Trade Pay Rs 2,500 No MTM as we Margin price & closing Price pay whole (Daily Settled ) (5550-5500)*50 amount MTM=(Trade price – closing price)* Lot Size Our Expectation is that index rise Professional Training Academy 22
- 23. Participant • Insuring an investment Hedgers against risk. • Who bets on derivatives Speculators markets • Attempt to profit from Arbitrageurs pricing inefficiencies Professional Training Academy 23
- 24. Play Grounds Professional Training Academy 24
- 26. Important Website www.nseindia.com www.bseindia.com Professional Training Academy 26
- 29. Taxation Particulars Income /Loss from Derivatives Head “Income from Business & Profession’ Taxed According to the tax slab Loss from Derivatives Adjusted under all Five Head Profit & Carry Forward to Next Year Professional Training Academy 29
- 30. Cost of Trading in Derivative Sr. Taxes Rates Futures Options Buy 1 Lot of Nifty at 6000 ,Contract Size 3,00,000 3,000 ( 50shares* 6000) / Buy 6000 call option at 60 Rs premium(50shares*60) Brokerage 0.03 % On Contract 90 Rs (0.03% on 3,00,000) 75 Rs (2.5% on 3,000) 1 Size/2.5% on Option Premium (Both Side) Service Tax 10.36% on Brokerage 9.32 7.77 2 Amount (10.36% on 90 Rs) (10.36% on 75 Rs) (Both Side) Securities 0.017% on Contract Size 25.50 2.55 3 Transaction (Only on Selling Side) (0.0085% on 3,00,000 Rs) (0.0085% on 3000Rs) Tax(STT) Stamp Duty 0.004% on Contract 12(0.004% on 3,00,000 Rs) 1.2(0.004% *3,000Rs) 4 Size(Both Side) 5 Education Cess 2% on Tax Amount 0.93(2% on 9.32+25.50+12) 0.23(2% * 7.77+2.55 +1.2) 6 Higher Edu Cess 1% on Education Cess 0.014 (1% on 0.93) 0.0028 (1% on 0.23) Professional Training Academy 30 Total Cost 137.76 86.75
- 31. How does One Make Money in A Futures Contract? • Trade according to the trends • Complete knowledge of Derivatives • Discipline Approach • Keep Stop loss on every trade Professional Training Academy 31