Authors: Nevuri Praneeth, Associate Professor Mr. Bh.L. Mohanraju
Abstract: The development of the derivatives market particularly instruments such as forwards, futures, and options originated from the need of risk-averse investors to protect themselves against uncertainties caused by fluctuations in asset prices. Derivatives are financial instruments whose value is derived from an underlying asset, and they play a crucial role in risk management. The market primarily consists of three types of participants: hedgers, speculators, and arbitrageurs. Prices in an organized derivatives market reflect the expectations of market participants about future price movements and often influence the prices of the underlying assets. In recent years, derivatives markets have gained significant importance due to their vital role in the financial system. The growth in investments in both domestic and international stock markets has further increased interest in this segment. While extensive research has been conducted in developed markets regarding the impact of futures and options on cash market volatility, the derivatives market in India is still relatively new and not widely understood by all investors. Therefore, regulatory bodies like SEBI need to take proactive measures to create awareness about derivatives trading.
