The document discusses derivatives trading in India. It provides an overview of why derivatives were introduced in India, including to integrate domestic and international markets and develop risk management tools. It also covers the origins of derivatives, types of markets (spot and derivatives), key derivative products like futures, forwards and options, as well as terminology used in derivatives trading.

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2. Why Derivatives in India
Integration of
Increased volatility
National &
in asset prices
International Market
Development of
Low Transaction
Risk Management
Cost of Trading
Tools
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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.
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4. Derivatives Trading on Exchanges
Index Index
Futures Options
Stock Stock
Futures Options
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5. Business Growth of F&O Segment in
India
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6. Types of Market
Spot Market
Derivative
Market
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7. Spot Market
Assets Class Delivery
Immediate
Delivery
Equity Shares
Commodity Physical
Immediate
Payment Currency Physical
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8. Derivative Market
Forward Segment
Future Segment
Options Segment
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9. Forwards
Transaction
Two Private
Contact at Expiry
Parties
Date
Physical /
(Forward
Cash
Price)
Settlement
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10. Participants in Forward Contract
Money
Delivery of Asset
Buyer Seller
(Who takes a (Who takes a
long position) short position )
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11. Future
Contract Between Two Parties
Traded in Recognized Stock
Exchange
Future Date
Price Agreed Upon Today
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12. Participants in Futures Contract
Payment Sell Contract
Buy Contract Payment
Clearing Future Seller
Future Buyer
Corporation
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13. Positions in a Futures Contract
• When a person buy a
Long futures contract
• When a person sell a
Short futures contract
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14. Difference Between Future & Forward
Forward Future
Nature 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
Delivery
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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 Contract
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16. Types of Options
Call Option
Options
Put Option
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17. Call Options
Right to Buy
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18. Put Options
Right to Sell
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19. Factors impacting Option Prices
Underlying Time to
Strike Price
Price Expiration
Risk Free Rate Volatility
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20. Derivative Terminology
Lot Size Expiry Date Contract Size
Spot Price Strike Price Initial Margin
Mark to
Option
Market Closing Price
Premium
Margin
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21. Contact Specification
S. no Terminology Remark Index Future Index Option
(Nifty) (Nifty)
1 Lot Size Minimum Quantity traded 50 50
in a lot decided by the
exchanges
2 Spot Price Price prevailing in 5500 5500
delivery market
3 Future/Strike Price Prevailing in future 5550 5550
Price market/price for which call
or put option exercise
4 Option Premium Amount decided by the 100
exchange on the basis of
strike price and spot price
5 Expiry Date Last Thursday of a month Last Thursday Last Thursday
6 Contract Next Three Month Feb, March, April Feb, March, April
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22. Contact Specification
S. 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
day
9 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 Size
Our Expectation is that index rise
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23. Participant
• Insuring an investment
Hedgers against risk.
• Who bets on derivatives
Speculators markets
• Attempt to profit from
Arbitrageurs pricing inefficiencies
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24. Play Grounds
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26. Important Website
www.nseindia.com
www.bseindia.com
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29. Taxation
Particulars Income /Loss from
Derivatives
Head
“Income from Business &
Profession’
Taxed According to the tax slab
Loss from Derivatives Adjusted under all Five Head Profit
& Carry Forward to Next Year
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30. Cost of Trading in Derivative
Sr. Taxes Rates Futures Options
Buy 1 Lot of Nifty at 6000 ,Contract Size 3,00,000 3,000
( 50shares* 6000) / Buy 6000 call option at 60 Rs
premium(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 7.77
2 Amount (10.36% on 90 Rs) (10.36% on 75 Rs)
(Both Side)
Securities 0.017% on Contract Size 25.50 2.55
3 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)
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Total Cost 137.76 86.75

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 trade
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