Derivatives derive their value from an underlying asset like equity share, index, commodity etc. The futures & options market in indices and equities has grown substantially (especially in indices) in the last 15 years and is a multiple of the cash equities market. The advantage of exchange traded futures and options are that they carry the counter guarantee of the clearing corporation and hence there is no default risk. That is where futures & options score over forwards.

The big advantage of futures is that it can be effectively used to either take a two-directional view on the market or even to create a fixed income low risk arbitrage product. Options can be used to either protect your price risk with limited insurance cost or it can used to reduce your cost of holding stocks or indices. You must also know that trading in futures and options is like margin trading without the interest cost involved. One of the big advantages of futures and options trading in India is that it offers the facility to trade on margin and thus improve your ROI. Of course, one needs to remember that leveraged trading can work both ways and hence any trading in options and futures must be with strict stop loss only.