Derivative in india final

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Derivative in india final

  1. 1. Professional Training Academy 1
  2. 2. Why Derivatives in India Integration of Increased volatility National & in asset prices International Market Development of Low Transaction Risk Management Cost of Trading ToolsProfessional Training Academy 2
  3. 3. Origin • First introduced in Chicago Board of Trade in 1848 for forward contract in 1. Commodities • Derivative Introduce in Indian Stock Exchanges in June 2000 2.Professional Training Academy 3
  4. 4. Derivatives Trading on Exchanges Index Index Futures Options Stock Stock Futures OptionsProfessional Training Academy 4
  5. 5. Business Growth of F&O Segment in IndiaProfessional Training Academy 5
  6. 6. Types of Market Spot Market Derivative MarketProfessional Training Academy 6
  7. 7. Spot Market Assets Class Delivery Immediate Delivery Equity Shares Commodity Physical Immediate Payment Currency PhysicalProfessional Training Academy 7
  8. 8. Derivative Market Forward Segment Future Segment Options SegmentProfessional Training Academy 8
  9. 9. Forwards Transaction Two Private Contact at Expiry Parties Date Physical / (Forward Cash Price) SettlementProfessional Training Academy 9
  10. 10. Participants in Forward Contract Money Delivery of Asset Buyer Seller (Who takes a (Who takes a long position) short position )Professional Training Academy 10
  11. 11. Future Contract Between Two Parties Traded in Recognized Stock Exchange Future Date Price Agreed Upon TodayProfessional Training Academy 11
  12. 12. Participants in Futures Contract Payment Sell Contract Buy Contract Payment Clearing Future SellerFuture Buyer Corporation Professional Training Academy 12
  13. 13. Positions in a Futures Contract • When a person buy a Long futures contract • When a person sell a Short futures contractProfessional Training Academy 13
  14. 14. Difference Between Future & Forward Forward FutureNature of Contracts Customized Standardized Counterparty Any Party Clearing Corporation Credit Risk Exist No Risk Liquidity Very Low Very High Margins Not Required Received / Paid on Daily Basis Valuation Not Done Daily Basis DeliveryProfessional Training Academy Physical / Cash No Delivery 14
  15. 15. Options A contract between two parties Where Buyer of the option has the right and not obligation to fulfill the contract Seller is under obligation to fulfill the ContractProfessional Training Academy 15
  16. 16. Types of Options Call Option Options Put OptionProfessional Training Academy 16
  17. 17. Call OptionsRight to Buy Professional Training Academy 17
  18. 18. Put OptionsRight to Sell Professional Training Academy 18
  19. 19. Factors impacting Option Prices Underlying Time to Strike Price Price Expiration Risk Free Rate VolatilityProfessional Training Academy 19
  20. 20. Derivative Terminology Lot Size Expiry Date Contract Size Spot Price Strike Price Initial Margin Mark to Option Market Closing Price Premium MarginProfessional Training Academy 20
  21. 21. Contact SpecificationS. no Terminology Remark Index Future Index Option (Nifty) (Nifty)1 Lot Size Minimum Quantity traded 50 50 in a lot decided by the exchanges2 Spot Price Price prevailing in 5500 5500 delivery market3 Future/Strike Price Prevailing in future 5550 5550 Price market/price for which call or put option exercise4 Option Premium Amount decided by the 100 exchange on the basis of strike price and spot price5 Expiry Date Last Thursday of a month Last Thursday Last Thursday6 Contract Next Three Month Feb, March, April Feb, March, April Professional Training Academy 21
  22. 22. Contact SpecificationS. no Terminology Remark Index Future Index Option (Nifty) (Nifty)7 Initial Margin Minimum amount Rs 69,375 required to make position (25% of (Suppose 25% of contract 2,77,500) Size) Option Premium * Lot Rs 5,000 Size (100*50)8 Closing Price Closing Price at the end of 5500 day9 Mark to Market Difference between Trade Pay Rs 2,500 No MTM as we Margin price & closing Price pay whole (Daily Settled ) (5550-5500)*50 amount MTM=(Trade price – closing price)* Lot SizeOur Expectation is that index rise Professional Training Academy 22
  23. 23. Participant • Insuring an investment Hedgers against risk. • Who bets on derivatives Speculators markets • Attempt to profit from Arbitrageurs pricing inefficienciesProfessional Training Academy 23
  24. 24. Play GroundsProfessional Training Academy 24
  25. 25. Professional Training Academy 25
  26. 26. Important Website www.nseindia.com www.bseindia.comProfessional Training Academy 26
  27. 27. 27Professional Training Academy
  28. 28. 28Professional Training Academy
  29. 29. TaxationParticulars Income /Loss from DerivativesHead “Income from Business & Profession’Taxed According to the tax slabLoss from Derivatives Adjusted under all Five Head Profit & Carry Forward to Next Year Professional Training Academy 29
  30. 30. Cost of Trading in DerivativeSr. Taxes Rates Futures OptionsBuy 1 Lot of Nifty at 6000 ,Contract Size 3,00,000 3,000( 50shares* 6000) / Buy 6000 call option at 60 Rspremium(50shares*60) Brokerage 0.03 % On Contract 90 Rs (0.03% on 3,00,000) 75 Rs (2.5% on 3,000)1 Size/2.5% on Option Premium (Both Side) Service Tax 10.36% on Brokerage 9.32 7.772 Amount (10.36% on 90 Rs) (10.36% on 75 Rs) (Both Side) Securities 0.017% on Contract Size 25.50 2.553 Transaction (Only on Selling Side) (0.0085% on 3,00,000 Rs) (0.0085% on 3000Rs) Tax(STT) Stamp Duty 0.004% on Contract 12(0.004% on 3,00,000 Rs) 1.2(0.004% *3,000Rs)4 Size(Both Side)5 Education Cess 2% on Tax Amount 0.93(2% on 9.32+25.50+12) 0.23(2% * 7.77+2.55 +1.2)6 Higher Edu Cess 1% on Education Cess 0.014 (1% on 0.93) 0.0028 (1% on 0.23) Professional Training Academy 30 Total Cost 137.76 86.75
  31. 31. How does One Make Money in A Futures Contract? • Trade according to the trends • Complete knowledge of Derivatives • Discipline Approach • Keep Stop loss on every tradeProfessional Training Academy 31
  32. 32. Professional Training Academy 32

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