derivative types
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Derivatives can be traded on exchanges wherein the exchange provides a platform for the transactions being done on the derivatives. It is similar derivative types trading stocks in these markets. Exchange traded derivatives were first introduced in Source with the introduction of index futures in the NSE.
Advantages of Exchange-Traded derivatives Liquidity: Derivatives that are traded in the exchanges are far more liquid than most of the other types of instruments traded all over the world.
This derivative types attributed to the structure of these instruments standardized contracts, transparent price which makes these instruments appealing to a lot of market participants which then enter such instruments and increase their liquidity. Liquidity is also attributed to the relative ease by which these instruments can be bought and sold. The stock exchanges and brokers all over the world keep on making it easier for participants to trade derivatives on exchanges.
Today, these products can be traded in nano-seconds as well, such is the magnitude of its liquidity and with the exponential increase in derivative types number of market participants, the liquidity of such instruments has also increased in the past few years. Risk of Default: Since there derivative types two parties involved in any transaction, there is always a corresponding risk that one of the parties may default in case the agreement turns out to be not in their favour.
It is however link in the Exchange-Traded derivatives. Thus, derivativd traded derivatives eliminate the default risk for the market participants. The purpose of these regulations is to protect the small players the derivative types participants from the big players the institutional participants- both domestic and foreign and the high networth individuals. Therefore, exchange-traded derivatives are much safer for small players than any over the counter agreements.]
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