Investor Dost

How does derivative work?

Derivative means trading in shares without actually buying or selling the shares. Now you will wonder how that is possible. It is a very simple concept.
Just take an eg. If i want want to buy 100 shares of Company A which are quoting at Rs 200/- I will have to pay Rs. 20,000/- and buy the shares. This is normal equity trading. Now in derivatives you do not have to pay the full price but just the margin money which is specified for each script say in our example it is
10 % therefore it will be Rs 20 per share. Therefore with Rs. 20,000 you can actually take position of 1000 shares of company A. This is much more than 100 shares which you could have bought if you would have actually purchased the shares.
Now the main part. In derivatives at the end of the day you have to maintain your margin and if you have made any profit the broker will give you the same and if you make any loss you have to make good the loss. Again for eg
If the share goes to 210 then you gain (1000 shares into Rs 10/- that is Rs 10,000)
If the share falls to 190 then you lose (1000 shares into Rs 10/- that is Rs 10,000)
That means you either make a lot of money or lose a lot of money.
Hence it is not only a risky business but also there is very little chances to make money.
The best strategy is to buy and hold shares for the long term or at least medium term.

now i have good knowledge of derivatives...thanks

i tried playing with futures.. lost a lot of money

i'll advice everyone to be very careful and not invest in futures unless you have full understanding and lots of money!!

Derivative is really a good way of earning money in forex , if you know how to use it .
You can lost your money if you take it wrong .