Derivative is known as instrument which is underlying asset that derives the value of final product. In a Financial world, derivative is an important as it allows to protect your portfolio from any underlying risk
Now you can earn money on share which are lying idle & actually you have bought it for a long term & you don’t have any intention to sell it. However, You can take advantage of those shares for the price fluctuations in short term. Derivatives markets allow you t do it & much better Option is derivatives market without actually selling you shares
It is taking a benefit of two market prices i.e buying low in one market & selling high on the other market & take an advantage of price difference.
It allows you to hedge against the market risk & price fluctuations, it allow you to hedge yourself against the falling price of certain shares that you plan to purchase.
It acts as a risk transfer instrument from the risk averse investors to the one who can bear risk. It allows you yo enhance safety & help the People to improve profits. There is a wide variety of products available and strategies that can be constructed, which help the investors to pass on their risk.
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