With the stock market on the rise, now is the right time to understand what makes derivatives special and how they can work for you.
Derivatives primarily function as an effective hedge against cash investments. However, the stock market surge has sharpened interest in derivatives trading as a speculative tool, with lots of retail investors choosing to invest in futures and options. As derivatives trading begins to take off, there is a need to understand its underlying strengths and means to optimize futures and options investments. To shed light on what makes a successful derivatives investment strategy, Mangalam Maloo, Senior Research Analyst & Market Anchor, CNBC-TV18, hosted a special discussion with Siddharth Bhamre, Director – Alternative Investments and Research, InCred, and Chandan Taparia, Derivatives & Technical Analyst, Motilal Oswal, on Finq.com presents ‘Learn the Advantages of Derivatives Over Direct Cash Flows’, in collaboration with Moneycontrol.
Make A Fresh Start
As part of his opening remarks, Chandan Taparia explained what has got investors interested in the derivatives market, with market turnover hitting Rs. 14 lakh crores. He also touched upon the shifting balance from hedging to speculating. “It’s like T20, as opposed to a test match”, was how he chose to summarize the attraction of the derivatives market.
Touching upon the potential for speculation in the derivatives market, Mangalam Maloo inquired if the risks of such a strategy were being underplayed. In response, Siddharth Bhamre was quite clear. “Derivatives are complex is a myth”, he said, before adding that modern investors are fully capable of maintaining the kind of scrutiny and close monitoring that proper derivatives trading requires, with instant information available on their digital devices.
Choose The Right Option
When it comes to choosing the right investment strategy, both experts prescribed consistency and a long-term view. Siddharth Bhamre dissuaded investors from being swayed by short term gains and insisted they maintain cash portfolios. Chandan Taparia, too, pitched for investors to make a conscientious effort to minimize or limit risk and stick with investments that promise healthy returns. Upon Mangalam Maloo’s suggestion, he also recommended the use of the Nifty website as a valuable source of derivatives information. For a better understanding of the derivatives market, Siddharth Bhamre also advised new traders to acquire a derivatives trading certificate from NISM.
The discussion brought forth finer nuances of derivatives trading – all focussed on making an investor’s entry into the derivatives market as seamless as possible. Apart from guidelines on how to invest in derivatives, the experts also suggested effective ways to hedge and safeguard derivatives investments. More than an initiation into derivatives trading, the discussion wound up being an invitation for investors to seize this great opportunity to grow.
Watch the full episode right here.