The stock market is a roller coaster that can quickly become brutal if you are not ready to fight and establish yourself as an investor. The population of India is over 1 billion people, yet only 18 million invest in stocks. These numbers don’t depend on the wealth possessed by a person, rather the zeal, determination, and drive to acquire knowledge about the stock market and retain it to invest there. Stock brokers in India are interested in those people who are persistent to stay in the market and deal with the risks that come along with investments.
What is spot trading?
- It is a market where financial commodities such as securities are traded on the spot. The nature of this trade is immediate, and spot trades come with spot prices. Spot market orders are settled immediately, unlike future markets. Spot markets could be over-the-counter markets, exchanges or organized markets.
- It is also called the physical market or the cash market as the orders are placed at current market prices and the pace of movement of ordersisimmediate. A special case includes future markets goods such as crude oil being sold at spot prices but have a later delivery.
- Future trades that are done and dusted within the end of the month can also be considered as spot trades.
- Organized markets or exchanges-This is a highly specialized market where sellers and buyers come together to deal with futures, options, securities, commodities, currencies, and other financial instruments. They are classified on the basis of the type of trades and the objects sold. If the type of trade is considered, they are divided in to future and classical exchange. If the objects sold are considered then the division includes stock exchange, foreign market exchange, and commodities exchange.
- Over the counter markets- They facilitate direct trade between the buyer and the seller. They can sign contracts that are non-standard, and the prices decided can be unpublished, or they can be a part of spot trades. OTC markets challenge the transparency provided by exchanges.
What is derivative trading?
- A derivative is a financial commodity with a price that depends on or is derived from one or more underlying assets. Two or more parties sign a derivative which is a contract based on the calculation of assets. Common underlying assets such as stocks, bonds, commodities, currencies, market indices and interest rates have fluctuations, which determine the derivative prices.
- OTC markets have unregulated derivatives and they contribute to a maximum portion of total derivatives whereas exchanges trade in standardized derivatives.
- Initially, traders who dabbled in international trade had to make up the differences caused by varying national currencies, and derivatives were used to balance these exchange rates.
- Derivatives are of different types. Certain derivatives can be utilized while hedging for protection against risks on specific assets. Circumventing exchange rate issues or betting on the future price of certain commodities can be done using derivatives. Currency futures can be used to protect an investor investing in international companies in the future to convert the stock sale into their currencies.
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