What
is a derivative? The value deriving from an underlying variable asset
and this underlying asset can be an equity share, debt instrument, a
currency or a commodity. Derivatives deals trading agreement that will
be fixing certain price and time of the present for future transactions.
The most frequently used derivatives are Futures and options contract in almost every market and these contracts deals with buying specific no .of currency pairs (which means the exchange of currencies) with today’s price as a fixation for the future transaction.
Why derivatives trading? There are many advantages of derivatives trading. These derivatives are used to cut down their losses or safeguarding their investments from market fluctuations.
If we are importing some goods in near future and imported goods is best paid in foreign exchange only because currency fluctuations. There may be instance that rupee value falls against the US dollar, imported goods will be expensive paying in own currency. we need make payments in USD dollars. For controlling these losses we may needs currency derivatives that is currency pair USDINR and this help us to hedge our foreign exchange exposure by buying USDINR and fixing today’s rate. You would hedge the loss if you were of the view that USDINR currency pair was going reduce its value.
Borrowers also can hedge foreign currency loans for interest and principal payments.
Some of the traders use these principles for buying shares cheaply in one market and try to sell those shares for profitable margins in other markets. This is may be not a new strategy but this is one of the basic principles we need to apply in every business.
The most frequently used derivatives are Futures and options contract in almost every market and these contracts deals with buying specific no .of currency pairs (which means the exchange of currencies) with today’s price as a fixation for the future transaction.
Why derivatives trading? There are many advantages of derivatives trading. These derivatives are used to cut down their losses or safeguarding their investments from market fluctuations.
If we are importing some goods in near future and imported goods is best paid in foreign exchange only because currency fluctuations. There may be instance that rupee value falls against the US dollar, imported goods will be expensive paying in own currency. we need make payments in USD dollars. For controlling these losses we may needs currency derivatives that is currency pair USDINR and this help us to hedge our foreign exchange exposure by buying USDINR and fixing today’s rate. You would hedge the loss if you were of the view that USDINR currency pair was going reduce its value.
Borrowers also can hedge foreign currency loans for interest and principal payments.
Some of the traders use these principles for buying shares cheaply in one market and try to sell those shares for profitable margins in other markets. This is may be not a new strategy but this is one of the basic principles we need to apply in every business.
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