Benefits of investing in Derivative Markets

Rohan Mathew

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Benefits of investing in Derivative Markets

Are you interested in investing but are unsure where to start? Consider the Derivatives Market. Derivatives are investments used to protect your portfolio or speculate on a particular asset’s future movements. Contrary to popular belief, Derivatives are uncomplicated, and plenty of resources are available to get you started. Let us discuss some of the benefits of investing in Derivatives and how you can get started. 

What is it?

Derivatives Trading is a financial marketplace where contracts are traded based on the underlying value of assets such as Stocks, Bonds, Commodities, or Currencies. These contracts derive their value from the performance of the underlying asset. Derivatives can speculate on future price movements or hedge against risk in an existing portfolio.

How to invest in them?

Investing in such markets happens through a broker or trading directly on exchanges. Derivatives can also be bought and sold Over The Counter. When trading OTC, it is essential to remember that there are no central exchanges, and you would be dealing directly with another party who may not be regulated. This trading can be riskier but offers higher rewards.


There are many benefits of Derivatives in Stock Market. It allows you to trade on margin, which means you can control a larger position if you buy the underlying asset outright. This leads to better profits if the trade goes your way and increases losses if it does not.  Another benefit is that Derivatives can be used to hedge against risk in an existing portfolio. For example, say you own a stock portfolio and are worried about a potential market crash. 

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You could buy Put Options on some stocks in your portfolio Insurance against a price drop. This would limit your downside risk if the market did indeed crashes. Lastly, Derivatives can be used to speculate on future price movements. This is done with both Futures and Options Contracts. Futures Contracts are agreements to buy or sell an asset at a set price at a future date. Options offer the right but not the obligation to buy or sell an asset at a fixed price in the future. 


Derivative Markets also involve some downside. Derivatives are high-risk instruments and are volatile in nature. They can lead to huge losses. The contracts are also designed such that it maybe complicated for the investors to valuate them. Derivatives are used as a speculative tool too. Any unreasonable speculations can wipe out a chunk of your capital. 


If you seek to invest money and see good returns over time, the Derivatives Market in India is the place to be. With increasing awareness about the market and its benefits, more people are investing in them daily. Make sure you do your research before investing so that you can make the most of it. 

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. – ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025, India, Tel No : 022 – 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: [email protected]. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.