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Who are the different participants of derivatives market ?

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Derivatives are contracts which derives its value from some underlying assets which can be commodities, currencies, interest rate, stock indices etc. All these underlying assets prices keeps on changing, therefore derivatives does not have its direct value and their value depends upon the future price movements of the underlying assets. To trade in futures contracts traders can use their existing Demat account and trading account or open them with registered broker if they do not have.

Four major entities of derivatives market are discussed below :

1) Trading members

They can trade using their own account for self or on their clients behalf. All these trades are finally settled by the clearing members.

2) Trading cum clearing members

They can trade and settle their own trades and of other trading members as well.

3) Professional clearing members

They are not a trading members. Usually professional clearing members are banks who settles trades of other trading members.

4) Self clearing members

They can trade and settle their own trade only and not of other trading members.

Following are the different participants of derivatives market :


1) Hedgers

Hedgers always aims to protect themselves from risk involved with future price fluctuations. They look for some opportunity using which they can pass risk to those who are ready to bear it. Hedger is a person who takes a position in one market to reduce and balance risk associated with assuming position in the opposing market. Derivative market offers different products using which you can pass risk to other market traders who are ready to take it.


2) Speculators

Traders often wonder why someone will be willing to take risk from them. The simple logic behind it is that we live in a world which consists of people with different thinkings. At times when you are thinking market will be falling next ,some may expect that market will rise and this difference in thinking explains how speculators are different from hedgers. Speculators are those who are willing to take risk with hope of earning good returns from market. In Indian market we have two types of speculators: day traders & positional traders.



3) Arbitrageurs

As nothing is perfect market also has some imperfections. Sometimes price of stocks in cash market is higher or lower than what it should be as compared to its price in derivatives market. Arbitrageurs are those who take advantage from these imperfections. Their trades are of low risk, they simultaneously trade in two markets by buying a security in one market and selling it in another market.Speculators, arbitrageurs and hedgers maintains market's efficiency and improve liquidity by taking long and short positions.


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