InvestorQ : How are the equity markets different from the derivatives market?
Anu Biswas made post

How are the equity markets different from the derivatives market?

Answer
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3 years ago
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Both the equity market and derivative market are part of the overall stock market. Both the markets come under the ambit of SEBI regulation. The difference lies in the products traded. The equity market deals in shares and stocks whereas the derivative market deals in futures and options (F&O). It needs to be remembered that the equity market is the underlying asset for trading in the futures and options market. For example, the underlying for Nifty futures is the Nifty index. The underlying for Reliance call option is the Reliance stock. Similarly, the underlying for SBI put option is the SBI stock. That is the linkage between the cash market and the F&O market.
Normally, investors take the positions in the cash market or the equity market and then protect their risk (hedge their risk) by using the futures and options market. The F&O market is a contract based market and does not create any ownership. As of now, it is still a cash-settled market although stock futures on select stocks have been brought under the ambit of actual delivery recently.
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