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DERIVATIVE PRODUCTS AND SPECULATION

WHAT ARE DERIVATIVES

llldt1'1Derind¥1TUl'N'M'ltltA~llrli.1'1MY-

0 Fmaoc~ conll'ICIS wbosc \raluc come, from an

undcrlymgas,ct(cg. 1tocb.,[Link]?1C1csl
0 Tbcy [Link] trade" to hed,:c mks. speculttt on pnct
movcmcnt5, or arbilmgc [Link] mdliciait1cs without
owning the underlymg u~et

Over 3 crorc rc:t1il [Link]. 11c: acti~ly lndma [Link], 10 lntbo. <..innlth Jue cd by ~
SPECULATION
~--
~.)Ce• t)le __
F c
P~ge t..-:i
~1::):: ,;cUmi as.,ets t1>r ihor1-tcrm profit from pr,cc ,10\[Link])
Spct.u.h1tors take ru,b [Link]~. bc:ltmg on market mo\.'[Link]
--\-
-:-:.1-
.Jnoneyu:;;..
Pros of Speculation
0 CrcatuLlquldlty ;
Makcsbuymgandsel\ingcas,crandfaster
=-

Cbancttr~lki:
High R,~k-H1gh Return
s~ulation
currencyt1o11ar ..=.
0 HclpsPriccDlJcovcry
Prices reflect future expcctahons (hkc inflation or war rmpact)

Le,.cragcJbelS 0 SupportsHcdgcn:
• Shor1 Holdml!, Pcnod .!!.~nge\- Fanncrs. cxportcn, clc. traMfcr risk lo speculators

0 111gb Profit Potential (IfSklllcd):

• "-loO.rncrsh1p Intent
Sm11n and di-.c1plincd speculator,. can make big returns
\'oluu\11yDepc:11J,:n1
Rcgulal1on'icns111,~ 0 Drlvu Ftnanclal lnnovatlon:
New tools (oplioM, fUl\lICS) created due lo speculator demand

HOW SPECULATION WORKS

• O ptions:
Cons of Speculation
BU)- a call opuon leg <ct.0ek at S IOO, premium SS) If stoc k nscs l.o
Sl:?O profit= SIS ($20 gam- S5 premium) Q Mosl People Lose Mone) Over8S•1. ofre~ tradcn
in India lose in F&O ([Link] data}
Lc\eragc
(Small lD'-estrnent controls large po,,uon.s (c .g 10-,'o margin IOx Q [Link]"!\[Link]~:
exJ)O'itm:) Prices move wildly even without real news..

0 Encourages Gunblln& Behavior: Many people trade

I as if lt being• game v.·itbout undcntandmg
[Link]:cs
* I
Famous [Link]: 0 leads to Financial Streu :
George Soros's famous [Link] - Sl:ackWecfoe.s:cby 16,r, Sep ( 1992) "The Man Who Broke The Bank of England" le1dtoloans,depm,S1on, andevcnaddlct1on.

MSkP :Mt:it:11; ~2!E$l&L 11

SEBI REGULATIO:-. TO CURB EXCESSIVE SPECULATIO:-.: CONCLUSION

::J U.,·eragc rutrictiom : Dcrivativ~ are powerful fmanc1al [Link].'I that derive their value from underlying &",'>Cl"' and are\'\ 1dcly \lSed for
[Link].l,.ck.,cr•[Link],;. hedging.. speculation. and aibitragc. Key \tlSUUme1).li such as Forwatds, Futura., Option,, and Swap, cathlet',c
Broken mu~t follow peak marg,n nonm
di~inct strategic roles m ri.~\( management and market opcraboru;
JOptions TradlngMargin Hikr:
[Link]!le\[Link](mostdangeroussu-ategyfor
ret.a1lcr-,j lo the lndian market, futures dominate trading volumes, particularly through tbc NSE', ~••HR)· F&O While •pc,c;ularion
Weekly expuy opllons arc tightly morutorcd due to high speculation can gencrote substanua\ profits, 1t i.s iubcrcn\ly hlgb-rlsk and oftco rcrults m ,[Link] los,« for re-au\ mve&tnn
90¾ incur loi;scs, according to SEBI
:J RUJ.: Dl1tlMure:s & Wamlng \fessagcs:
,;;[BJ manda1e1 broh11; to sho"' loss prob abi\Jty to traders·
K9" .. of rcuul traders loi;c money 1n F&O" To address this, regula1ory bodtcs have tightened nonru.. [Link] higher mugin tcqu1n:mcttts and cot1trac1' IW:

h-
Platforms mui;t "'end pop-up nsk alctu before execution thresholds Although spccu\ahon contributes to Markt:t Uquldlly, Price dluovu), and Ftat11da\ lnoYatton, .- aho
mcrcascs volatility llnd can promote gllXlbbng-hl:c bcluLV1or
.J ~arn lllaocc & Penalties:
Ru,J.11mc momlonng of abnonnal trade~ and volume spikes.
Heavy pc:nalt1e1 for price m;uupulallon, [Link] \ndmg
Thcfeforc, ethical and infonncd speculation--\lalanccd by dtscipho,e, fa,mcu, and [Link] a•ameu- -11 C$lllelltial lo
h&rnes~ the bcnefilS of dcnvat.1vc.<, wlulc mmiminng bann-
and ) "~1,ttr;uh:n think ~
• • :\1 11\t '111-1~nh, " iri' ~
ltntm.,:"_rui. 1f )nu dorj'l uft i1c .. t:,ulif 11,!_!:
hiifiqib@fiiiiilliiilMIMifiiiiii&..UUJi
-

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