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Whether you invest for short-term or for long-term, there are a number of portals as well as websites that offer their services online to investors and traders to make use of. These websites are known to offer a number of hassle free facilities as we as online tools as well as low brokerage charges as compared to traditional stock brokers. One of the important markets that investors and traders take part in is the derivatives market .This market is known to be the place where financial instruments such as options or future contracts (that are derived from other forms of assets) are traded. This market can basically be divided into two different types: that for the exchange-traded derivatives and the second one for over-the-counter derivatives. So how does one understand what derivatives really are? One of the important factors to keep in mind regarding these financial instruments is that they are those financial instruments that ‘derive’ their value based on the performance of another entity. This may include an asset, interest rate-known as the underlying factor and or index. Some of the different financial derivatives include swaps, forwards, futures, options and a number of variations such as collars, floors, caps as well as credit default swaps. There are a number of websites that are available on the internet so that people can conduct online trading in India . Once a person registers online he/she will get an online trading as well as DP account. These details can then be used when logging into secured websites so as to conduct various transactions. Using a very safe as well as dedicated interface for operation, it is easy for a person to conduct the different trading transactions via the internet. In fact online derivative trading in India can be performed from a number of free trading platforms. These websites are known to offer a number of updated quotes as well as charts for options and futures trading as well as powerful risk management systems. There are many different uses for investing in derivatives. Some of these include: • They are known to mitigate or hedge the amount of risk in the underlying. The value is known to move in the opposite direction to the underlying position and cancels part or all of it. • To help create the option ability where the value of the derivative is not only linked to a specific event ( for instance: the underlying reaching a specific price level) or condition. • To obtain the exposure to the underlying in a scenario where it is not possible to trade in the underlying (for e.g. weather derivatives) • To provide leverage (gearing) in such a manner that any minute/small movement to the underlying value can create a large difference in the value of the derivatives. • To not only speculate but also make a profit if the value of the underlying asset moves in a certain way that is expected (for instance: staying in or out of a specified range or even reaching a particular level). These financial instruments are known to help avoiding the payment of taxes. A person, for example may receive steady payments for an equity swap. This may be based on the LIBOR rate (the London Interbank Offered Rate); thereby avoiding any payment of capital gains tax.
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