Equity Derivatives : SEBI
SEBI has come out with a new framework for monitoring intraday positions in equity index derivatives, a move aimed at preventing risks caused by large exposures.
- Derivatives are financial contracts that derive value from an underlying asset.
- Derivatives allow traders to bid on the direction of the underlying asset’s price change without owning them.
- They allow investors to speculate on price movements, hedge against risks, or enhance portfolio returns.
- Equity Derivatives are financial instruments whose value is derived from the movements of a stock or a stock index.
- Equity derivatives serve various purposes for investors and traders, including risk management, speculation, and portfolio optimisation
- Equity Derivative Types: There are four common types of equity derivatives.
- Futures Contracts: These obligate the buyer to purchase and the seller to sell an underlying equity asset at a predetermined price and future date. Equity index futures, like the BSE S&P and Nifty IT, are popular examples.
- Options: Equity options give the holder the right, but not the obligation, to buy (call option) or sell (put option) an underlying stock or index at a specified price before or on a specific expiration date.
- Swaps: Equity swaps involve exchanging cash flows based on the return of an underlying equity asset. These can be used for hedging or investment purposes.
- Forwards: Forwards are the same as futures, where the parties are obligated to perform the contract. But forwards are non-standardised, over-the-counter contracts that don’t trade on the stock exchanges.
