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What is meant by derivatives trading and how to trade in it ?

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Derivatives are financial contracts which derives its value from an underlying asset like stocks, indices, commodities, exchange rates, currencies and more. It deals with an agreements where two parties: a buyer and a seller agrees to buy/sell at pre decided price and future date. There is no actual value of derivatives as its value is derived from underlying asset. You can use your existing demat account and trading account to trade here as no separate account is needed.

Following are the types of derivatives contracts



1) Forward contracts

Forward contracts represents an agreement between a buyer and a seller where both the parties agrees to buy/sell as per contract specification. Participants here may face counter party risk as no regulatory body is present.

2) Future contracts

Future contracts are standardized forward contracts as they are traded over the exchange and no counter party risk exists.

3) Options

Options contracts are of two types: call options & put option. This contract is similar to forward and future contacts with a key difference that there is no obligation on both the parties which has to be fulfilled by them.

4) Swap

Swap enables both the parties to exchange cash flows in future. Two popular types of swaps are interest rate swap & currency swap.

Procedure to be followed to begin trading in derivative is discussed below:

1) Learn about it and get familiar with its different terminologies.Understand that strategies works here in a different manner. For example if you are expecting a fall in price of stock then you will enter in its sell transaction but in-case of derivatives you will enter in its buy transaction. This is how strategies differ here.

2) Identify the margin amount which is required to be maintained in your account and arrange for it as at any point of time you can not withdraw it from your trading account. Also keep in mind margin amount changes whenever there is a rise or fall in stocks price.

3) Ensure that your broker facilitates you to trade in derivatives using your existing trading account.

4) Carefully understand your risk bearing capability and pick up stocks wisely on the basis of amount you have, margin requirements and price of contracts.

5) Once you enter in the contract and take your position then you may wait till expiry date of contract to settle the trade.On expiration either you can pay entire outstanding amount or take position which is opposite to your current position.


Pehla trade is among growing discount brokers who facilitates traders to trade in different derivatives contracts. All contracts specifications and other information needed to successfully trade here is offered by us on our trading platform. With us you can trade by paying flat Rs1/trade for your beginning one month. Join us to save your brokerage amount and focus more on trade.
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