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Kochi, Nov. 14 With the importance of derivatives trading becoming manifest over Indian capital markets, the volume of futures trading through the country’s bourses have grown manifold. And a significant proportion of this trade is transacted through the National Stock Exchange, Mr Mahesh Kumar, Senior Executive of NSE, said.

Addressing a Business Line Club function at the Rajagiri School of Management in Kochi, he said that technology was a pre-requisite for the introduction of futures trading. The programme was organised in association with Geojit Financial Services Ltd.

Derivatives derive their value from the underlying security and do not have an independent value of their own. This makes it mandatory for the underlying security to have a very high level of liquidity.

Consequently, a high level of liquidity is seen as a major pre-requisite for an underlying security to become eligible for futures trading.

Most of the 30 shares which comprise the Sensex and 50 shares of Nifty have high level of liquidity and are eligible for futures trading. Futures trading in both the indices, the Sensex and Nifty, are also permitted.

Though equities offer the highest returns in the basket of financial investment portfolio, it also has a high level of inherent risk. While the capital markets have introduced a variety of programmes to reduce the risk by introducing transparency, accountability and rigid payment and delivery schedules, there still remains a fair amount of uncertainties over equity investments.

Mr Kumar said that the introduction of futures trading has reduced the risks of equity investments even further. Investors can hedge the risk of his investments in the equity markets by holding positions in the futures markets and thus limiting the extent and vulnerability of his exposure.

More Stories on : Derivatives Markets | Kerala

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