InvestorQ : What is the structure of the derivatives market in India?
Priyanka Singh made post

What is the structure of the derivatives market in India?

Answer
user profile image
shrinidhi Rajan answered.
2 years ago


The derivatives market in India consists of the unorganized forward market and the exchange-traded futures & options market. Derivatives trading for our purpose basically refer to the exchange traded derivatives market. The principal trading products in the derivative market in India are futures and options. An example of the forward market in India is the inter-bank forward dollar market used for currency hedging. There are some basic problems with forward trading markets. Firstly, they are customized and hence if somebody wants to exit a forward transaction then it is not possible unless someone with a similar requirement also comes in. Secondly, what happens if one of the parties to a forward transaction defaults? There is no recourse except to go to court and try and enforce the contract. In futures market on the stock exchanges, all transactions are guaranteed by the clearing corporation. That means; the clearing corporation acts as the counter party for every transaction so the default risk is almost zero.