Types of derivative

Types of derivative 

Types of derivative:

1 forward                            2 future                      3 option                     

Let’s understand this by taking an Example

1 forward/over the counter :

                                                 

Here buyer and seller directly involve in the contract without involving of mediator here value and time both are determined by mutual agreement between buyer & seller.

2 future derivate:

 it is opposite of forward /otc here a mediator life SEBI derivative mediatory bank etc are involve all value and time  both are determined by mediator eg let continue given  example of below if the price of cotton goes down by 2000 then also he will set at 3000 once

3 option plan :

Let suppose if A agrees to sell cotton worth 3000 after 6 months to B and after a six month when the value of cotton rise to 5000 even A has to bear the loss of  2000 hence. A can opt insurance of that transaction i.e let suppose its value rose to 5000 &  the loss of 2000 will be remit by insurance Co. To an, after payment of certain fees\ premium & if a value has not changed after 6 months i.e  3000 there would no profit & no loss to an except i.e 3000 there would no profit & no loss to an except the premium amount.