What is the derivative?
Many of the people can’t understand this.
So friends,I will explain to you “what is the derivative?” in easy way in this video.
Derivative is the instrument which is made by price of asset.
Derivative is made by derived,
here derive means generating something.
For an example,Cheese and curd is made with milk.
Here milk is underlying asset ,Curd and cheese are their derivatives.
Price of cheese and curd is totally dependent on the price of milk
means if the price of milk increases then the price of curd and cheese also increases.
Basically curd and cheese is premium of milk.
For an example we purchase share of Maruti company by which Maruti future is made through premium.
Here Maruti is underlying asset to whom we called spot price.
The  future price of Maruti is more than their share price.
Exchange for trading is done in two segments,
one is cash segment where you can buy  shares easily
and second is derivative segment where work is done in stocks,commodities, and currency.
But in cash segment if you purchase any share then you have to pay in cash
and in derivative,you only have to pay margin money of purchased shares
means  you have to pay only 15-20% of the total amount.
In derivative market,we cannot buy or sell 1 share rather here we deals in lots.
For example,one lot of heromoto Corp contains 200 shares
whose current  future price is Rs. 2610.
If you want to purchase 1,00,000 of future then we have to pay 15-20% amount.
Let’s understand the calculation of this,
1 lot of Heromoto Corp is of 200 shares and its current future market price is Rs.2610.
So, 2610 X 200 = 5,22,000.
It is the total amount of 1 lot.
but we have to only pay 15-20% means we have to pay something around Rs. 93,000.
In cash segment,we can hold shares In Demat account safely for long-time
but in derivative segment,there is an expiry date of every share
which is the last Thursday of every month and is also known as Near Month.
We can carry forward the shares in derivative,
for example in Feb month we can purchase shares of Jan month,which is called next month or mid month
and we can purchase Jan month shares in March month which is called Next month or Far month.
Derivative Market is of 4 types like future,forward,swap and option.
Part of derivative is covered in the next video.
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