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Tagged: Need of Derivatives
traders need derivative segments because it does not require 100% investment and chance of loss is minimal and also where huge loss can be avoided.
In derivatives market, people can transact huge transactions with small amounts and therefore it gives the benefit of leverage and hence even people who have less amount of money can enter into this market and also the costs such as basis expense, brokerage are less as compared to cash market.
Futures/call/put are derivative markets needed by traders to optimize their profits and hedge their losses. If the traders can forecast future market scenario,they can make money out of it.
Futures / call / put are called as Derivatives / instruments of financial market.
They are used basically as risk management tools. They help anyone having an underlying risk exposure to manage their risk.
These derivatives are required to maximize the profit and cover the loss.
Short position can only be created in the derivative market, which is an advantage for the trader when he forecasts that the stock market is going to be bearish.
A trader needs a futures call and put to ensure that he is buffered from market volatility and have a predictive price he can use to buy or sell an item in a future time. It insulates the business from market risk of the price.
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