Der|vat|ves

l am sure LhaL you have heard of Lhe expresslon derlvaLlve before ?our LrusLy dlcLlonary wlll Lell you LhaL a
derlvaLlve ls someLhlng LhaL ls developed from someLhlng else lf you have Laken a calculus course ln hlgh school or
college you may remember Lhe Lerm derlvaLlve as Lhe raLe of change ln a varlable ln Lhe flnanclal world however
Lhe flrsL deflnlLlon ls closer Lo Lhe LruLh uerlvaLlves are flnanclal lnsLrumenLs LhaL have been derlved from oLher
producLs or flnanclal lnsLrumenLs 1herefore each derlvaLlve ls based on a speclflc producL or lnsLrumenL known as
Lhe underlylng producL or lnsLrumenL lor example a cerLaln klnd of derlvaLlve based on a speclflc sLock (known as
a sLock opLlon) would have LhaL sLock as lLs underlylng lnsLrumenL (underlylng sLock)
1wo of Lhe mosL popular Lypes of derlvaLlves are fuLures and opLlons We wlll cover Lhese Lwo lnsLrumenLs ln Lhe
comlng chapLers lf you sLarL geLLlng losL ln Lhe followlng dlscusslon donL worry Lhe concepL wlll become clear Lo
you by Lhe Llme you flnlsh Lhe fuLures and opLlons chapLers So read on
1he quesLlon ln your mlnd may be why do derlvaLlves exlsL and why do people lnvesL ln Lhem? 1he sLralghL
answer ls LhaL derlvaLlves were creaLed Lo perform as hedges agalnsL losses from Lhelr underlylng lnsLrumenLs lor
example a sLockholder may buy sLock opLlons wlLh Lhe same underlylng sLock ln whlch Lhe opLlons are poslLloned
Lo go up
ln value lf Lhe sLock prlce falls ln Lhls way Lhe lnvesLor uses derlvaLlves as an lnsurance pollcy agalnsL losses vls
vls Lhe sLock he ls holdlng Powever many people have dlscovered derlvaLlves as lnvesLmenL Lools ln Lhelr own
rlghL and Lrade Lhem [usL llke oLher Lypes of lnsLrumenLs
WhaL makes derlvaLlves an aLLracLlve cholce for people ls Lhe power of leverage Lach unlL of a derlvaLlve normally
corresponds Lo a number of unlLs of lLs underlylng securlLy 1he derlvaLlve holder does noL own Lhe underlylng
producL (for LhaL he would have Lo purchase Lhe producL dlrecLly) buL he ls sald Lo be conLrolllng lL 1herefore for a
llLLle money Lhe lnvesLor can conLrol (lndlrecLly) a loL of Lhe underlylng producL (leverage) now lf Lhe prlce of Lhe
producL moves favorably (dependlng on Lhe derlvaLlve poslLlonlng) Lhe lnvesLor sLands a chance Lo make a loL
more proflL Lhan lf he owned Lhe producL lLself 1hls sounds llke Loo much of a good Lhlng and you may be asklng
whaLs Lhe caLch? And lndeed Lhere ls a Lradeoff here oLherwlse everyone would lnvesL ln Lhe derlvaLlves and Lhe
underlylng producLs would remaln unLouched (whlch also would noL be a good Lhlng for derlvaLlves slnce Lhey are
based on Lhe prlces of Lhe underlylng producLs)
1he caLch ls LhaL derlvaLlves explre or maLure aL speclflc daLes and lf one cannoL reallze a proflL or aL leasL geL ouL
even before LhaL daLe one would lose parL or all of Lhe lnlLlal lnvesLmenL 1he Llme facLor glves derlvaLlves a very
rlsky characLerlsLlcunllke oLher Lypes of lnsLrumenLs you do noL have Lhe luxury Lo hold on Lo your lnvesLmenL
lndeflnlLely unLll you see flL Lo sell ?our lnvesLmenL ln Lhls case has a speclflc amounL of Llme (relaLlvely shorL) Lo
show proflL or else lL could become a loss AnoLher characLerlsLlc of derlvaLlves ls LhaL Lhey can be creaLed
(wrlLLen) by ordlnary lnvesLors and sold Lo oLher lnvesLors Confused yeL? uonL be dlscouraged lL Lakes many
people a long Llme Lo undersLand and correcLly apply some of Lhese concepLs Popefully Lhe
fuLures and Lhe opLlons Loplcs ln Lhls book wlll geL you famlllar wlLh many of Lhese concepLs and acceleraLe your
cllmb up Lhe learnlng curve

|t|es
ln our llves Lhere are cerLaln producLs LhaL we use everyday or aL leasL mosL days LeLs conslder a Lyplcal day ln Lhe
llfe of a Lyplcal person She may have breakfasL conslsLlng of cereal bacon and orange [ulce 1hen her car bullL
malnly from meLals would requlre gas Lo geL her Lo work She may use a compuLer aL work and some of lLs
componenLs use meLals such as copper and gold (ln lLs chlps) Per house bullL from lumber may use heaLlng oll
for warmLh durlng wlnLer She may have a few cups of coffee wlLh sugar durlng Lhe day and may have bread wlLh
her lunch and dlnnerPer cloLhes and bed sheeLs are malnly made from coLLon
MosL of us have a loL ln common wlLh Lhe person [usL descrlbed 1haL ls because Lhere are cerLaln maLerlals all of
us use ln our llves wlLhouL whlch we cannoL lmaglne llvlng MeaLs oll meLals and gralns are all examples of raw
maLerlals used wldely by our socleLy and Lhey are known as commodlLles Cur everyday dependence on
commodlLles assures LhaL large volumes of Lhese maLerlals are boughL and sold Lo saLlsfy Lhe markeL demand lor
example oll (peLroleum) ls one such commodlLy LhaL ls consumed ln large quanLlLles everyday lrom auLomoblles
Lo alrplanes Lo power generaLlon faclllLles Lo Lhe LransporLaLlon lndusLry oll ls Lhe llfeblood of our socleLy noL Lo
menLlon LhaL heaLlng oll plasLlcs fabrlcs and numerous oLher producLs we use everyday are also derlved from oll
ueallng ln commodlLles has become a lucraLlve pracLlce for many who proflL from Lhe sheer volume and prlce
volaLlllLy assoclaLed wlLh Lhem 1hey are commodlLy Lraders who pracLlce Lhe old rule of buy low
and sell hlgh ln hlgh volumes Lo make large galns Cf course [usL llke any oLher Lype of lnvesLmenL people can and
do lose money when Lradlng commodlLles So commodlLles are lLems and maLerlals (someLlmes lndlspensable)
used ln large quanLlLles by people everyday wlLhouL whlch our dally llves cannoL conLlnue as we know Lhem Loday
1hls large demand for commodlLles has creaLed a large flnanclal markeL where Lraders can buy and sell
commodlLles or Lhe paper represenLaLlons of Lhem ln an organlzed markeL Such a markeL ls referred Lo as Lhe
spoL markeL where Lhe prlces reflecL Lhe currenL golng raLe of Lhe commodlLles
?ou mlghL have for example heard of Lhe Lerm spoL gold SpoL gold ls Lhe golng prlce of gold ln Lhe spoL markeL
reflecLlng Lhe prlce of gold on any glven dayWhlle Lhe Lrades are done on paper (or lLs elecLronlc verslon)
cerLlflcaLes Lhey are ln essence Lhe same as Lradlng real gold ln Lhe markeL and Lhe dally prlce flucLuaLes
dependlng on Lhe levels of supply and demand for gold ln Lhe world
8uL Lhere ls yeL anoLher class of flnanclal lnsLrumenLs derlved from gold known as gold fuLures (remember our
dlscusslon of derlvaLlves) Cold fuLures reflecL Lhe prlce of gold aL a cerLaln Llme ln fuLure for example Lhree
monLhs slx monLhs or one year from now 1here are many oLher commodlLles ln Lhe markeL and Lhey all have
Lhelr respecLlve fuLures All of Lhem are Lraded ln an organlzed markeL known as Lhe fuLures markeL

tres
1he fuLures markeL ls an old and glganLlc sysLem of buyers and sellers who Lrade commodlLles and Lhelr respecLlve
fuLures new ?ork and Chlcago are Lwo of Lhe mosL well known cenLers for Lradlng fuLures ln Lhe laLe 19Lh cenLury
new ?ork and Chlcago were Lhe popular zones for
Lradlng commodlLles 1he commodlLles ranged from gralns Lo preclous meLals and new ?ork and Chlcago (perhaps
due Lo Lhelr geographlcal advanLages) were developed as ma[or cenLers for warehouslng and dlsLrlbuLlng
agrlculLural goods AL LhaL Llme many smaller exchanges numbered ln hundreds began Lo dlsappear and mosL of
Lhe Lradlng was shlfLed Lo Lhese large cenLers 1oday new ?ork and Chlcago have Lhe dlsLlncL poslLlon of havlng Lhe
ma[or commodlLy exchanges ln Lhe uS lf noL Lhe world 1hese lnclude
1be cblcoqo 8ootJ of 1toJe (C81) for gralns bonds and shorLLerm lnLeresL raLes
1be cblcoqo Metcootlle xcbooqe (CML) for llvesLock currencles and sLock lndex fuLures
1be New otk commoJltles xcbooqe (CCMLx) for preclous meLals copper and alumlnum
1be New otk cottoo xcbooqe (n?CL) for coLLon and Lhe dollar lndex
1be New otk Metcootlle xcbooqe (ML8C) for peLroleum and preclous meLals
1be New otk lototes xcbooqe (n?lL) for commodlLy and sLock lndlces
1be New otk coffee 5oqot ooJ cocoo xcbooqe (CSCL) for coffee sugar and cocoa
*Note lo Iooe of 2004 tbe two blstotlc excbooqes tbe New otk cottoo xcbooqe (Nc) ooJ tbe coffee 5oqot
cocoo xcbooqe (c5c) metqeJ to fotm tbe New otk 8ootJ of 1toJe (N8O1)
As o tesolt of tbls metqet oll ptevloos excbooqes ooJ sobslJlotles ceoseJ to exlst locloJloq tbe coffee 5oqot
cocoo xcbooqe tbe New otk cottoo xcbooqe tbe clttos Assoclotes of tbe New otk cottoo xcbooqe tbe New
otk lototes xcbooqe (Nl) ooJ tbe llN\ xcbooqe All motkets ote oow tefetteJ to os tbe New otk 8ootJ of
1toJe ot N8O1
Whereas many of Lhese exchanges sLarLed as cenLers Lo Lrade real goods Loday mosL of Lhe Lrades ln Lhese
exchanges are on paper (now mosLly Lhe elecLronlc verslon of paper Lhe compuLer) wlLh only a very small
percenLage of Lhe conLracLs (whlch are Lhe paper represenLaLlons of Lhe commodlLles) resulLlng ln acLual dellvery
of commodlLles ln oLher words a person buylng coffee conLracLs does noL necessarlly anLlclpaLe recelvlng coffee
beans ln hls backyard when Lhe conLracLs come due unless he wanLs Lo
So whaL are fuLures? luLures are blndlng conLracLs beLween Lhe sellers and Lhe buyers creaLlng an obllgaLlon for
Lhe seller Lo dellver a cerLaln amounL of goods aL a cerLaln Llme and aL a flxed prlce (per conLracL) Lo Lhe buyer 1he
buyer of Lhe conLracL on Lhe oLher hand ls paylng Lhe conLracL prlce Lo recelve Lhe goods aL LhaL Llme 1he prlce of
Lhe conLracL ls deLermlned uslng compeLlLlve blddlng aL Lhe exchange whlch ls arrlved aL by Lhe Lraders Lhrough a
process known as prlce dlscovery 1hrough Lhls process buyers compeLe wlLh each oLher Lo make blds for Lhe
conLracLs whlle sellers compeLe wlLh each oLher Lo ask for a prlce 1hese are known as ask and bld prlces Cnce a
buyer and seller reach an agreemenL on prlce Lhe conLracL ls Lraded and LhaL prlce becomes Lhe golng prlce of LhaL
conLracL aL LhaL momenL ConLracL prlces move hlgher and lower purely based on Lhe Lraders [udgmenL as Lo how
much a cerLaln commodlLy would be worLh aL Lhe Llme of Lhe dellvery based on Lhe all avallable daLa (prlce
dlscovery) As you may lmaglne supply and demand play a blg role ln deLermlnlng a conLracLs prlce buL
percepLlon ls also a blg facLor ln all Lhls lf for example a cerLaln commodlLy such as gold ls percelved as llkely Lo
be ln shorL supply ln slx monLhs Lhe fuLures conLracLs for gold wlLh a slxmonLh maLurlLy wlll rlse ln prlce And lf a
warm wlnLer ls predlcLed Lhe heaLlng oll conLracLs maLurlng ln wlnLer monLhs may see Lhelr prlces dlmlnlshed
Why would people wanL Lo engage ln Lradlng fuLures? LeLs Lake a look aL a pracLlcal example Alrllnes by naLure
requlre a greaL amounL of [eL fuel Lo sLay operaLlonal and Lhe [eL fuel accounLs for a subsLanLlal cosL ln operaLlng
Lhelr buslness We all know LhaL oll prlces (and Lherefore [eL fuel prlces) are ln a consLanL sLaLe of flux and change
drasLlcally due Lo pollLlcal soclal and economlc reasons 1hls makes lL very dlfflculL for an alrllne Lo geL a handle
on forecasLlng fuLure cosLs whlch can have serlous effecLs on Lhe alrllnes flnanclal plannlng As oll prlces change
Lhe alrllne may end up under budgeL or over budgeL for
fuel causlng flnanclal dlsrupLlonsPow can Lhe alrllne guaranLee sLable [eL fuel prlces for aL leasL some Llme lnLo
Lhe fuLure?
LnLer fuLures 1he alrllne can purchase gasollne fuLures conLracLs Lo cover some or all of lLs anLlclpaLed [eL fuel
needs any number of monLhs or years from now 1he conLracLs Lhen allow Lhe alrllne Lo pay a cerLaln prlce for a
cerLaln amounL and quallLy of fuel now and Lake dellvery of Lhe fuel aL Lhe maLurlLy Llme of Lhe conLracL regardless
of fuLure prlce flucLuaLlons 1he advanLage for Lhe alrllne ls LhaL lL can geL a handle on lLs [eL fuel cosLs for some
Llme lnLo Lhe fuLure So whaL ls Lhe caLch? 1here ls cerLalnly a caLch here where Lhe alrllne could poLenLlally be aL a
dlsadvanLage lor example lf Lhe prlce of gasollne suddenly drops Lhe alrllne cannoL beneflL from Lhe lower prlces
slnce lL already locked ln aL Lhe conLracL prlce Also lf Lhe alrllnes [eL fuel demand decreases lL musL sLlll Lake
dellvery of Lhe full amounL speclfled by Lhe conLracL 1haL ls Lhe rlsk Lhe alrllne musL be wllllng Lo Lake Lo guaranLee
prlce sLablllLy for lLs [eL fuel
Cne way Lo reduce such rlsks ls for Lhe alrllne Lo buy fewer gasollne fuLures conLracLs ln LhaL case Lhe alrllne
obLalns a porLlon of lLs fuel requlremenLs Lhrough conLracL dellvery and Lhe resL on Lhe open (spoL) markeL
Lhereby galnlng parLlal prlce proLecLlon whlle allowlng lL Lo parLlally beneflL from prlce drops lf any AnoLher way ls
Lo seLLle some of lLs conLracLs prlor Lo maLurlLyWell explaln Lhls soon
1haL was of course [usL an example lllusLraLlng Lhe LheoreLlcal beneflLs of fuLures ln reallLy less Lhan 4 of fuLures
conLracLs resulL ln physlcal dellvery of Lhe underlylng commodlLles ln mosL of Lhe cases Lhe conLracLs are seLLled
wlLhouL Lhe acLual underlylng commodlLy enLerlng Lhe plcLure 1he supply and demand for Lhe underlylng
commodlLles have a dlrecL lmpacL on Lhe prlces of Lhelr respecLlve fuLures buL Lraders rarely lf ever geL Lo see Lhe
acLual commodlLles
noLe noL all fuLures conLracLs resulL ln a physlcal dellvery even aL maLurlLy lor example for lndex fuLures whlch
are generally based on sLock lndlces one cannoL be expecLed Lo dellver Lhe lndex slnce lL ls noL a Langlble producL
lnsLead for such conLracLs cash ls used as Lhe means for dellvery 1hese are known as cashseLLled fuLures)

Intrnt|n t er|vat|ves tres an Cpt|ns
!anuary 19 2008 by 8aag vamdaLL 3 CommenLs

1hls arLlcle lnLroduces Lhe concepL of derlvaLrlves and explalns Lhelr uLlllLy lL also explalns fuLures and opLlons ln
deLall


What |s a er|vat|ve?
1he LexLbook deflnlLlon of a derlvaLlve ls A derlvaLlve ls an lnsLrumenL whose value depends on an underlylng
WhaL does lL mean ln slmple Lerms? Well Lhe word ls klnd of self explanaLory Lhe value of a derlvaLlve ls derived
from Lhe value of someLhlng 1hls someLhlng ls called Lhe Dner|y|ng of Lhe derlvaLlve
So for sLock derlvaLlves Lhe prlce of Lhe shares of a parLlcular company ls Lhe underlylng lor an lndex derlvaLlve
Lhe value of Lhe lndex ls Lhe underlylng And for a crude oll derlvaLlve Lhe prlce of crude oll ls Lhe underlylng
As and when Lhe prlce of Lhe underlylng changes Lhe value of Lhe derlvaLlve based on lL also changes Cf course
Lhe prlce also depends on Lhe demand and supply for LhaL derlvaLlve buL Lhe prlmary drlver of Lhe prlce of a
derlvaLlve ls Lhe prlce of Lhe underlylng

Iar|s Dner|y|ng Assets
MarkeLs are very creaLlve! 1here are people everywhere who spoL opporLunlLy Lo earn money from lnnovaLlve
sources and Lherefore derlvaLlves are avallable for almosL anyLhlng!
1he prlmary focus of Lhls arLlcle would be derlvaLlves based on equlLles and equlLy lndlces 8uL Lhe oLher
derlvaLlves avallable are CommodlLy derlvaLlves (crude oll coLLon eLc) bulllon derlvaLlves (gold sllver eLc)
weaLher derlvaLlves and many more

1ypes Der|vat|ves
1here are many Lypes of derlvaLlves buL leL me Lalk abouL Lhe Lwo baslc derlvaLlves Lraded ln lndla

res
1hls ls a derlvaLlve conLracL ln whlch Lhe quanLlLy raLe and daLe of a fuLure purchase ls agreed upon Loday for a
glven asseL
AL Lhls predeclded daLe Lhe buyer of Lhe fuLures conLracL geLs Lhe dellvery of Lhe predeclded quanLlLy of Lhe
glven asseL aL Lhe predeclded prlce Slmllarly Lhe seller of Lhe fuLures conLracL glves Lhe dellvery of Lhe pre
declded quanLlLy of Lhe glven asseL aL Lhe predeclded prlce
ln a fuLures conLracL boLh Lhe buyer and seller are bound Lo honour Lhelr commlLmenL Lhe buyer fs Lo Lake
dellvery and Lhe seller fs Lo make dellvery accordlng Lo Lhe Lerms of Lhe conLracL
1hus even lf Lhe prlce of Lhe asseL goes down Lhe buyer has Lo geL Lhe asseL from Lhe seller aL Lhe predeclded
prlce And even lf Lhe prlce goes up Lhe seller has Lo glve Lhe seller aL Lhe predeclded prlce
st
1here ls no upfronL cosL lnvolved ln Lhe purchase of a fuLures conLracL aparL from brokerage
Lxample
A sells Lhe fuLures conLracL of 8ellance lndusLrles sLock Lo 8 CuanLlLy ls 200 shares prlce ls 8s 3200 and Lhe explry
daLe ls 3 monLhs away
now afLer 3 monLhs lrrespecLlve of Lhe markeL prlce of Lhe sLock of 8ellance lndusLrles A would dellver 200
shares of 8ellance lndusLrles Lo 8 aL 8s 3200

ions
As Lhe name suggesLs here Lhe buyer has an oion Lo Lake dellvery of Lhe asseL and noL Lhe obllgaLlon 1hus lf
Lhe markeL prlce of Lhe asseL goes up and buyer of an opLlon would exerclse Lhe opLlon and geL proflLs 8uL lf Lhe
markeL prlce of Lhe asseL goes down Lhe buyer of Lhe opLlon would noL exerclse lL and would allow Lhe opLlon Lo
lapse
1hus CpLlons are more flexlble for Lhe buyers compared Lo fuLures 8uL Lhe seller of Lhe opLlon has Lhe obllgaLlon
Lo dellver Lhe asseLs lf Lhe buyer chooses Lo exerclse Lhe opLlon
ln case of opLlons Lhe predeclded prlce for Lhe exchange of asseL ls called Lhe tr|ke r|ne
Cne Lhlng Lo remember Lhough ls LhaL ln reallLy noL many people acLually exercise Lhelr opLlons people do noL
acLually exchange Lhe asseL aL Lhe Llme of exerclse Slnce Lhe opLlons are Lraded ln Lhe markeL lnsLead of
exerclslng Lhem Lhe buyers [usL se// Lhem ln Lhe markeL
1he loglc behlnd Lhls when an opLlon ls |n the ney (LhaL ls when lL becomes proflLable for Lhe buyer) lLs
opLlon premlum or Lhe prlce goes up So one can sell lL and make proflL lnsLead of exerclslng lL 1hls ls easler and
Lherefore ls done by mosL people

Aer|nan an Lrpean Cpt|ns
1he opLlons are of Lwo Lypes Amerlcan and Luropean ln Amerlcan opLlons Lhe opLlon can be exerclsed any Llme
upLo Lhe seLLlemenL daLe ln Luropean opLlons Lhe opLlon can be exerclsed only on Lhe seLLlemenL daLe 1hus
Amerlcan opLlons are much more flexlble (l am lnLroduclng Lhls here [usL as a concepL ln lndla only Amerlcan
opLlons are Lraded)
st
1here ls a cosL lnvolved for opLlons Lhe buyer of Lhe opLlon has Lo pay Lhe seller an CpLlon remlum whlch ls Lhe
fee Lhe opLlon seller (also called Lhe CpLlon WrlLer) geLs ln reLurn for Lhe oneslded guaranLee he exLends Lo Lhe
buyer Slnce Lhe opLlon wrlLer assumes Lhe rlsk of Lhe prlce movemenL Lhls fee ls well [usLlfled
Lxap|e
A wrlLes Lhe opLlon of 8ellance lndusLrles sLock Lo 8 CuanLlLy ls 200 shares sLrlke prlce ls 8s 3200 and Lhe explry
daLe ls 3 monLhs away 1he opLlon premlum ls 8s 23
now durlng Lhese 3 monLhs say Lhe prlce of 8ellance lndusLrles sLock goes up Lo 8s 3400 ln Lhls case 8 would
exerclse Lhe opLlon and would geL Lhe shares aL 8s 3200 from A
1hus 8 would make a proflL of 8s 3400 8s 3200 8s 23 (CpLlon premlum) 8s 173 Slmllarly A would make a
loss of 8s 173
8uL lf Lhe prlce of 8ellance lndusLrles sLock remalns less Lhan 8s 3200 for Lhe 3 monLh duraLlon 8 would noL
exerclse Lhe opLlon ln Lhls case Lhe opLlon buyer 8 would make a loss equal Lo Lhe opLlon premlum 8s 23 ln Lhls
case and Lhe opLlon wrlLer would make a proflL equal Lo Lhe opLlon premlum 8s 23

Dse Der|vat|ves
1he prlmary use of a derlvaLlve ls Lo hedge rlsk (also called Pedglng) When you buy a derlvaLlve you are maklng a
provlslon LhaL makes your cash flows more cerLaln or LhaL llmlLs your losses (l would wrlLe anoLher arLlcle Lo
lllusLraLe Lhls uslng calculaLlons)
lor example say you are an exporLer and your earnlngs are ln dollars now you would recelve your paymenL of
$13000 afLer slx monLhs 8uL slnce you spend ln 8upees you would also llke Lo keep Lrack of your earnlngs ln
8upees
1he value of dollars afLer slx monLhs would declde your acLual earnlng ln rupees Slnce LhaL ls noL known rlghL
now lL brlngs uncerLalnLy Lo your earnlngs Loo uerlvaLlves can be helpful ln such a scenarlo
?ou can buy uollar 8upee fuLures conLracL of $13000 wlLh Lhe raLe of 8s 393 for a dollar and wlLh a valldlLy of 6
monLhs 1hus you would be cerLaln abouL your earnlngs afLer 6 monLhs wheLher Lhe raLe afLer 6 monLhs ls 8s
37 or 8s 41 you would geL 8s 393 for every dollar
lor a buslness Lhls klnd of cerLalnLy ln cash flows and earnlngs can be a very blg rellef!
Pedglng ls Lhe prlmary use of derlvaLlves 8uL ln Lhe markeL aparL from hedgers we also have many parLlclpanLs
LhaL use derlvaLlves [usL for lnvesLmenLs people who wanL Lo make proflLs ouL of Lhe prlce movemenL of
derlvaLlves [usL llke sLocks
1he presence of such parLlclpanLs ls noL bad because Lhey provlde llquldlLy and depLh Lo Lhe derlvaLlves markeL
uo come back Lo read arLlcles descrlblng derlvaLlves ln more deLall