Equity Derivatives

Equity Derivatives are instruments whose values are partly derived from one or more underlying equity asset class. Futures and Options are the most commonly-traded equity derivatives products. You can engage in equity derivatives trading to hedge risks associated with long or short positions, or to speculate on the price movements of stocks or indices.

Benefits of Equity Derivatives

The following are the ways in which you can benefit by trading in equity derivatives:

  • Hedging and Risk Management – Analogous to purchasing an insurance policy, you can use this mechanism to reduce the risks of adverse price movements in stock prices through equity derivatives trading.
  • Leverage – When trading in equity derivatives products, this mechanism allows you to gain greater exposure by investing smaller amounts.
  • Arbitrage – You can make profits by exploiting the mispricing of the same stock in equity derivatives markets and cash market.
  • Liquidity – The continuous flow of information and transparency due to price discovery enhances liquidity in the equity derivatives market.
  • Low transaction costs – The transaction costs are low as equity derivative trading is based on margin money.