SUMMER TRAINING PROJECT REPORT

ON

“DERIVATIVES IN THE STOCK MARKET”

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

THE MASTER’S DEGREE IN BUSINESS ADMINISTRATION

SUBMITTED TO:

INTERNAL GUIDE EXTERNAL GUIDE

Name- Dr. Somnath Paul Mr. Pramod Kumar
Associate Professor Key Operating Manager
Graphic Era Hill University Reliance Securities ltd.
Dehradun Goregaon, Mumbai- 400063

SUBMITTED BY:
MANSI RAWAT
(20552355)

GRAPHIC ERA HILL UNIVERSITY, DEHRADUN

BATCH 2020-2022
 ACKNOWLEDGEMENT

The success and outcome of this project required a lot of guidance and assistance from
many people and I am extremely privileged to have got this along the completion of the
project. All that I have done is only due to such supervision and assistance and I would
not forget to thank them.

I take this opportunity to convey my sincere thanks and obligation to my respected guide
MR. SOMNATH PAUL. It is because of his support, guidance and co-operation without
which it would not have been possible for me to complete my project.

I would also like to thank MR. PRAMOD KUMAR, key operating manager of the
company, who despite his busy schedule he has helped me continuously and indeed, his
valuable contribution and guidance have been certainly indispensable for my project
work

It is my pleasurable duty to thank my External Guide: Mr. Pramod Kumar for giving me
an opportunity to work with RELIANCE SECURITIES. I would thank him for taking
keen interest on my project work by providing all the necessary information for
developing a good system.

I owe my heartfelt thanks and appreciation to the entire staff RELIANCE SECURITIES,
who never hesitated from helping during the project.

Finally, I gratefully acknowledge the support, encouragement & patience of my family,

and as always, nothing in my life would be possible without God, Thank You!

NAME: MANSI RAWAT

 CERTIFICATE

I have the pleasure in certifying that Ms. MANSI RAWAT is bonafide student of 3rd Semester of
the Master's Degree in Business Administration (Batch 2020-2022), of Graphic Era Hill University,
Dehradun, Roll No. 2002115 she has Completed her project work entitled under my guidance. I
certify that this is her original effort & has not been copied from any other source. This project has
also not been submitted in any other Institute / University for the purpose of award of any Degree.
This project fulfils the requirement of the curriculum prescribed by this University for the said
course. I recommend this project work for evaluation & consideration for the award of Degree to
the student.

Signature:

Name of the guide: Dr. Somnath Paul

Designation: Associate Professor

Date:
INTERSHIP CERTIFICATE
 EXECUTIVE SUMMARY

The emergence of the market for derivatives products, most notably forwards, futures and
options, can be tracked back to the willingness of risk averse economic agents to guard
themselves against uncertainties arising out of fluctuations in asset prices. Derivatives are
risk management instruments, which derive their value from an underlying asset. The
following are three broad categories of participants in the derivatives market:
 Hedgers
 Speculators
 Arbitragers
By their very nature, the financial markets are marked by a very high degree of volatility.
Through the use of derivative products, it is possible to partially or fully transfer price
risks by locking-in asset prices.
As instruments of risk management, these generally do not influence the fluctuations in
the underlying asset prices. However, by locking-in asset prices, derivative products
minimize the impact of fluctuations in asset prices on the probability and cash flow
situation of risk-averse investors. In recent times the Derivative markets have gained
importance in terms of their vital role in the economy. The increasing investments in
stocks (domestic as well as overseas) have attracted my interest in this area. The
derivative market is newly started in India and it is not known by every investor, so SEBI
has to take steps to create awareness among the investors about the derivative segment.
This project tries to explain the in depth concepts, about the history, growth and pros and
cons in investing and dealing with the derivative instruments. And the analysis part deals
with choosing the best available option in terms of returns. The main objective of the
study is to give the knowledge of derivatives to the investors who are uncomfortable
about the equity market would enter if they were given the alternative of buying
derivatives, which controls their downside risk. This would enhance the action of the
savings of the country, which are routed through the equity market. The study also gives
an overview of the derivative products and features and the advantages in dealing with
these financial derivatives more importantly derivatives as one of the important hedging
tools. The research also reveals the difference in trading derivatives from those of the
underlying spot. In a nutshell the study throws a light on the derivatives market.
 TABLE OF CONTENT:

CHAPTER CONTENT PAGE NO

CHAPTER 1 Introduction: 1-11

Theoretical background of the study

Industry profile
Company profile
CHAPTER 2 Literature review: 12-13

CHAPTER 3 Research methodology: 14-16

Need for the study

Objectives of the study

Scope of the study
Significance
CHAPTER 4  Data Analysis and interpretation 17-28

CHAPTER 5  Findings 29-31

Suggestions
Conclusion

Bibliography 32-35

Questionnaires
 CHAPTER-1
INTRODUCTION

DERIVATIVES:

The emergence of the market for derivatives products, most notably forwards, futures and
options, can be tracked back to the willingness of risk-averse economic agents to guard
themselves against uncertainties arising out of fluctuations in asset prices. By their very nature,
the financial markets are marked by a very high degree of volatility. Through the use of
derivative products, it is possible to partially or fully transfer price risks by locking-in asset
prices. As instruments of risk management, these generally do not influence the fluctuations in
the underlying asset prices. However, by locking-in asset prices, derivative product minimizes
the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-
averse investors.

Derivatives are risk management instruments, which derive their value from an underlying asset.
The underlying asset can be bullion, index, share, bonds, currency, interest, etc.. Banks,
Securities firms, companies and investors to hedge risks, to gain access to cheaper money and to
make profit, use derivatives. Derivatives are likely to grow even at a faster rate in future.

DEFINITION

Derivative is a product whose value is derived from the value of an underlying asset in a
contractual manner. The derivative itself is a contract between two or more parties, and its price
is determined by fluctuations in the underlying asset. The underlying asset can be stock, bonds,
equity, forex, commodities, currencies, or any other asset.

1) Securities Contracts (Regulation) Act, 1956 (SCR Act) defines “derivative” to secured or
unsecured, risk instrument or contract for differences or any other form of security.

2) A contract which derives its value from the prices, or index of prices, of underlying securities.

1
FUNCTIONS OF DERIVATIVES MARKETS

The following are the various functions that are performed by the derivatives markets. They are:

 Prices in an organized derivatives market reflect the perception of market participants

about the future and lead the price of underlying to the perceived future level.
 Derivatives market helps to transfer risks from those who have them but may not like
them to those who have an appetite for them.
 Derivatives trading acts as a catalyst for new entrepreneurial activity.
 Derivatives markets help increase saving and investment in long run.

ADVANTAGES

1. LEVERAGE: The ability and chances to make huge and extreme profits is high in
derivatives than in case of primary securities or mutual funds.
2. MANAGES THE RISK: Derivative contracts helps to hedge the risk of high prices in
future. Most important purpose of these contracts is managing the risk.

DISADVANTAGES

1. HIGH VOLATILITY: Since the value of derivatives is based on certain underlying

things such as commodities, metals and stocks etc., they are exposed to high risk. Most of
the derivatives are traded on open market. And the prices of these commodities metals
and stocks will be continuously changing in nature. So the risk that one may lose their
value is very high.

2. REQUIRES EXPERTISE: In case of mutual funds or shares one can manage with even
a limited knowledge pertaining to his sector of trading. But in case of derivatives it is
very difficult to sustain in the market without expert knowledge in the field.

3. CONTRACT LIFE: The main problem with the derivative contracts is their limited life.
As the time passes the value of the derivatives will decline and so on. So one may even
have chances of losing completely within that agreed time frame.

2
TYPES OF DERIVATIVES

1. FORWARDS: A forward contract is a customized contract between two entities, where

settlement takes place on a specific date in the future at today’s pre-agreed price.
2. FUTURES: A futures contract is an agreement between two parties to buy or sell an
asset in a certain time at a certain price, they are standardized and traded on exchange.
3. OPTIONS: Options are of two types-calls and puts. Calls give the buyer the right but not
the obligation to buy a given quantity of the underlying asset, at a given price on or
before a given future date. Puts give the buyer the right, but not the obligation to sell a
given quantity of the underlying asset at a given price on or before a given date.
4. WARRANTS: Options generally have lives of up to one year; the majority of options
traded on options exchanges having a maximum maturity of nine months. Longer-dated
options are called warrants and are generally traded over-the counter.
5. LEAPS: The acronym LEAPS means long-term Equity Anticipation securities. These are
options having a maturity of up to three years.
6. BASKETS: Basket options are options on portfolios of underlying assets. The underlying
asset is usually a moving average of a basket of assets. Equity index options are a form of
basket options.
7. SWAPS: Swaps are private agreements between two parties to exchange cash floes in the
future according to a prearranged formula. They can be regarded as portfolios of forward
contracts. The two commonly used Swaps are:
a) Interest rate Swaps: These entail swapping only the related cash flows between
the parties in the same currency.
b) Currency Swaps: These entail swapping both principal and interest between the
parties, with the cash flows in on direction being in a different currency than those
in the opposite direction.
8. SWAPTION: Swaptions are options to buy or sell a swap that will become operative at
the expiry of the options. Thus a swaption is an option on a forward .

3
PARTICIPANTS

The following three broad categories of participants in the derivatives market.

HEDGERS: Hedgers face risk associated with the price of an asset. They use futures or options
markets to reduce or eliminate this risk.

SPECULATORS: Speculators wish to bet on future movements in the price of an asset. Futures
and options contracts can give them an extra leverage; that is, they can increase both the
potential gains and potential losses in a speculative venture.

ARBITRAGERS: Arbitrageurs are in business to take of a discrepancy between prices in two

different markets, if, for, example, they see the futures price of an asset getting out of line with
the cash price, they will take offsetting position in the two markets to lock in a profit.

4
 INTRODUCTION TO FORWARD, FUTURES AND OPTIONS

In recent years, derivatives have become increasingly important in the field of finance. While
futures and options are now actively traded on many exchanges, forward contracts are popular on
the OTC market. In this chapter we shall study in detail these three derivative contracts.

FORWARD CONTRACT

A forward contract is an agreement to buy or sell an asset on a specified future date for a
specified price. One of the parties to the contract assumes a long position and agrees to buy the
underlying asset on a certain specified future date for a certain specified price. The other party
assumes a short position and agrees to sell the asset on the same date for the same price. Other
contract details like delivery date, price and quantity are negotiated bilaterally by the parties to
the contract. The forward contracts are normally traded outside the exchanges.

FEATURES OF FORWARD CONTRACT

 They are bilateral contracts and hence exposed to counter–party risk.

 Each contract is custom designed, and hence is unique in terms of contract size,
expiration date and the asset type and quality.
 The contract price is generally not available in public domain.
 On the expiration date, the contract has to be settled by delivery of the asset. If the party
wishes to reverse the contract, it has to compulsorily go to the same counterparty, which
often results in high prices being charged.

LIMITATIONS OF FORWARD CONTRACT

Forward markets world-wide are afflicted by several problems:

 Lack of centralization of trading

 Illiquidity, and
 Counterparty risk

5
FUTURE CONTRACT

DEFINITION:

A Futures contract is an agreement between two parties to buy or sell an asset a certain time in
the future at a certain price. To facilitate liquidity in the futures contract, the exchange specifies
certain standard features of the contract.

The standardized items on a futures contract are:

 Quantity of the underlying

 Quality of the underlying
 The date and the month of delivery
 The units of price quotations and minimum price change
 Location of settlement

FEATURES OF FUTURES

 Futures are highly standardized

 The contracting parties need to pay only margin money
 Hedging of price risks
 They have secondary markets to.

TYPES OF FUTURES:

On the basis of the underlying asset they derive, the financial futures are divided into two types:
1. Stock futures

2. Index futures

PARTIES IN THE FUTURES CONTRACT

There are two parties in a future contract, the buyer and the seller. The buyer of the futures
contract is one who is LONG on the futures contract and the seller of the futures contract is who
is SHORT on the futures contract.

6
OPTIONS

DEFINITION

Option is a type of contract between two persons where one grants the other the right to buy a
specific asset at a specific price within a specific time period. Alternatively the contract may
grant the other person the right to sell a specific asset at a specific price within a specific time
period. In order to have this right. The option buyer has to pay the seller of the option premium
the assets on which option can be derived are stocks, commodities, indexes etc. If the underlying
asset is the financial asset, then the option are financial option like stock options, currency
options, index options etc., and if options like commodity option.

TYPES OF OPTIONS

Call Options
A call option gives the buyer, the right to buy a specified quantity of the underlying asset at a
strike price on or before expiry date. The seller however, has the obligation to sell the underlying
asset if the buyer decides to exercise his option to buy.

Put Options
A Put Option gives the buyer, the right to sell a specified quantity of the underlying asset at a
strike price on or before expiry date. The seller however, has the obligation to buy the underlying
asset if the buyer decides to exercise his option to sell.
Option Pricing: Intrinsic value + Time Value

PARTIES IN AN OPTION CONTRACT:

1. Buyer of the option: The buyer of an option is one who by paying option premium buys the
right but not the obligation to exercise his option on seller/writer.

2. Seller/writer of the option: The writer of the call /put options is the one who receives the
option premium and is there by obligated to sell/buy the asset if the buyer exercises the option on
him.

7
 TYPES OF OPTIONS:

The options are classified into various types on the basis of various variables. The following are
the various types of options.

1. ON THE BASIS OF THE UNDERLYING ASSET: On the basis of the underlying asset the
option are divided in to two types:

• Index options: The index options have the underlying asset as the index.

• Stock options: A stock option gives the buyer of the option the right to buy/sell stock at a
specified price. Stock option are options on the individual stocks, there are currently more than
150 stocks, there are currently more than 150 stocks are trading in the segment.

2. ON THE BASIS OF THE MARKET MOVEMENTS: On the basis of the market movements
the option are divided into two types. They are:

• Call option: A call option is bought by an investor when he seems that the stock price moves
upwards. A call option gives the holder of the option the right but not the obligation to buy an
asset by a certain date for a certain price.

• Put option: A put option is bought by an investor when he seems that the stock price moves
downwards. A put options gives the holder of the option right but not the obligation to sell an
asset by a certain date for a certain price.

3. ON THE BASIS OF EXERCISE OF OPTION: On the basis of the exercising of the option,
the options are classified into two categories.

• American option: American options are options that can be exercised at any time up to the
expiration date, all stock options at NSE are American.

• European option: European options are options that can be exercised only on the expiration
date itself. European options are easier to analyze than American options. All index options at
NSE are European.

8
 COMPANY PROFILE

ABOUT RELIANCE SECURITIES

Reliance Securities, the broking & distribution arm of Reliance Capital, is one of the
India’s leading retail broking houses, providing customers with access to equities,
derivatives, currency, IPOs, mutual funds, bonds, and corporate FDs amongst others. The
large array of financial offerings helps customers fulfilling their investment objectives on
one platform.

Reliance Securities Limited

Type Public

Founded 17 June 2005

⁶ Reliance Centre, Santa Cruz

(East), Mumbai

, 

India

Area served India

Key people Lav Chaturvedi

Chief Executive Officer

Products Equity Broking

Number of 900
employees

Website www.reliancesmartmoney.com

9
RELIANCE SECURITIES OFFERINGS

Reliance Securities offers secure online trading platforms & investment activities in a cost
effective and convenient manner. To enable wider participation, it also provide the
convenience of trading offline through variety of means including live Chat, Call and
Trade, Branch Dealing Desks and network of affiliates.

Focus on timely & error-free execution represents its core strength. Our best in class
research offerings, high degree of compliance with stock exchange regulations, ethical
business standards, & strong risk management capabilities. Reliance Securities positions
itself amongst strong & innovative brands in the financial services space.

Reliance Securities intends to change the way people transact in financial markets and
avail financial services.

Vision:
To be the most trusted financial services brand creating continuous value for our customers by
helping them achieve financial prosperity via innovative & analytically driven solutions

Mission:
To simplify investments & trading for our customers through technology backed, user friendly,
value-broking services.

ORGANIZATION STRUCTURE

 Executive Director & Chief Executive Officer

Lav Chaturvedi

 Board of Directors
Chetan Desai: Independent Director
Homai Daruwalla: Independent Director

 Management Team
Meenaa Sharma: Chief Human Resource Officer
Pankaj Kapoor: Chief Marketing Officer
Deepak Singh: Chief Business Officer
Sharad Joshi: Chief Legal Officer

10
 SWOT ANALYSIS OF THE COMPANY:
An in-depth analysis of activities of the Institute helped in generating a comprehensive
understanding of its strengths, weaknesses, opportunities and threats. These were prioritized as
follows:

STRENGTHS WEAKNESS

 Innovative range of financial services.  Penetration limited to urban areas.

 Diversified risk with investments in

upcoming sectors like infrastructure.

 Largest E-broking house in the country.

 Has over 6000 outlets in India and over 3.5

million clients.

 Ranks among the top 3 private sector

financial services and banking groups, in
terms of net worth.

OPPORTUNITY THREATS

 Growing rural market.

 Stringent Economic measures by
 Earing urban youth. Government and RBI.
 Educating people about the benefits of  Entry of foreign finance firms in Indian
Market.
investments to increases target audience.

11
 CHAPTER-2
LITERATURE REVIEW

Regulation for Derivative Trading

SEBI set up a 24 member committed under Chairmanship of Dr. L. C. Gupta develop the
appropriate regulatory framework for derivative trading in India. The committee submitted its
report in March 1998. On May 11, 1998 SEBI accepted the recommendations of the committee
and approved the phased introduction of derivatives trading in India beginning with stock index
Futures. SEBI also approved the “suggestive bye-laws” recommended by the committee for
regulation and control of trading and settlement of Derivative contract.

Behavior of Stock Market Volatility after Derivatives

Financial market liberalization since early 1990s has brought about major changes in the
financial markets in India. The creation and empowerment of Securities and Exchange Board of
India (SEBI) has helped in providing higher level accountability in the market. New institutions
like National Stock Exchange of India (NSEIL), National Securities Clearing Corporation
(NSCCL), and National Securities Depository (NSDL) have been the change agents and helped
cleaning the system and provided safety to investing public at large. With modern technology in
hand, these institutions did set benchmarks and standards for others to follow. Microstructure
changes brought about reduction in transaction cost that helped investors to lock in a deal faster
and cheaper.
One decade of reforms saw implementation of policies that have improved transparency in the
system, provided for cheaper mode of information dissemination without much time delay, better
corporate governance, etc.

The capital market witnessed a major transformation and structural change during the period.
The reforms process have helped to improve efficiency in information dissemination, enhancing
transparency, prohibiting unfair trade practices like insider trading and price rigging.
Introduction of derivatives in Indian capital market was initiated by the Government through L C
Gupta Committee report. The L.C. Gupta Committee on Derivatives had recommended in
December 1997 the introduction of stock index futures in the first place to be followed by other
products once the market matures. The preparation of regulatory framework for the operations of
12
 the index futures contracts took some more time and finally futures on benchmark indices were
introduced in June 2000 followed by options on indices in June 2001 followed by options on
individual stocks in July 2001 and finally followed by futures on individual stocks in November
2001.

Do Futures and Options trading increase stock market volatility?

Numerous studies on the effects of futures and options listing on the underlying cash market
volatility have been done in the developed markets. The empirical evidence is mixed and most
suggest that the introduction of derivatives do not destabilize the underlying market. The studies
also show that the introduction of derivative contracts improves liquidity and reduces
informational asymmetries in the market. In the late nineties, many emerging and transition
economies have introduced derivative contracts, raising interesting issues unique to these markets.
Emerging stock markets operate in very different economic, political, technological and social
environments than markets in developed countries like the USA or the UK. This paper explores
the impact of the introduction of derivative trading on cash market volatility using data on stock
index futures and options contracts traded on the S & P CNX Nifty (India). The results suggest
that futures and options trading have not led to a change in the volatility of the underlying stock
index, but the nature of volatility seems to have changed post futures. We also examine whether
greater futures trading activity (volume and open interest) is associated with greater spot market
volatility. We find no evidence of any link between trading activity variables in the futures market
and spot market volatility. The results of this study are especially important to stock exchange
officials and regulators in designing trading mechanisms and contract specifications for derivative
contracts, thereby enhancing their value as risk management tools

13
 CHAPTER-3

RESEARCH METHODOLOGY

NEED FOR STUDY:

In recent times the Derivative markets have gained importance in terms of their vital role in the
economy. The increasing investments in derivatives (domestic as well as overseas) have attracted
my interest in this area. Through the use of derivative products, it is possible to partially or fully
transfer price risks by locking-in asset prices. As the volume of trading is tremendously
increasing in derivatives market, this analysis will be of immense help to the investors.

World financial market has witnessed a spectacular change in the field of derivative markets in
the past one decade, especially in the field of option, futures and swaps. India also could not
become aloof from the world trend and mainly after the liberalization has set in motion. A
derivative market has gained momentum since its introduction in India and has played a major
role in Indian financial markets. Today the derivative volume in India is Rs.25000crores.
Similarly, on the equity market, many retail investors who are uncomfortable about the equity
market would enter if they were given the alternative of buying insurance, which controls their
downside risk. This would enhance the action of the savings of the country, which are routed
through the equity market. More importantly, derivative is one of the important tools of hedging.
Therefore, the study of the concept of derivatives is very important to know about various
investment alternatives in derivatives.

OBJECTIVES OF THE STUDY

 To study the concept of derivatives and its different variants.

 To study the risk transformation by buying and selling derivative instruments.
 To identify the factors affecting investors response.
 To identify the investment patterns of the investors.
 To give the investors an idea of selecting the best derivative instruments.

14
SCOPE OF THE STUDY

The study is limited to “Derivatives” with special reference to futures and option in the Indian
context and the Inter-Connected Stock Exchange has been taken as a representative sample for
the study. The study can’t be said as totally perfect. Any alteration may come. The study has
only made a humble attempt at evaluation derivatives market only in India context. The study is
not based on the international perspective of derivatives markets, which exists in NASDAQ,
CBOT etc.

LIMITATIONS OF THE STUDY

 The sample size taken for research may not give exact figure or may not cover the entire
popularity. Therefore, it doesn’t be the entire perception of investors in Bangalore.
 The respondent may be artificial, or the respondent may be biased.
 The third constrain is that the respondent may skip some questions. Also, they may not
respond to every question correctly.
 The fourth and important constrain is the time limit. Since the study had to be conducted
in a short span of time, the accuracy may be affected.

METHODOLOGY

The study is mainly based upon primary and secondary data. Primary data was collected from
direct personal interview with the help of structured and unstructured questionnaires and
secondary data is collected from newspaper, magazines, internet etc.

Primary data:

 Direct personal interview

Secondary Method:

 Financial newspapers,
 Magazines
 Journals
 Internet
 Books: - Derivatives Dealers Module Work Book - NCFM (October 2005)

15
PLAN OF ANALYSIS

The collected data will be studied with the help of statistical tools and techniques. Wherever
possible to make the presentation effective tables, charts, diagrams and graphs will be used.

SAMPLING PROCEDURE

How should the respondent be chosen? To obtain a representative sample and non-probability
sample can be drawn, they are

Descriptive research is a study designed to depict the participants in an accurate way. More
simply put, descriptive research is all about describing people who take part in the study.

There are three ways a researcher can go about doing a descriptive research project, and they are:

 Observational, defined as a method of viewing and recording the participants

 Case study, defined as an in-depth study of an individual or group of individuals

 Survey, defined as a brief interview or discussion with an individual about a specific

topic For collection of research data, convenience sampling method is used where most of

them
are general public and judgment-sampling techniques also was used, as they are good prospect for
accurate information and some of them were Stock market investors.

16
 CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

1. Are you trading in derivative market?

Frequenci Percentag
es e
Yes 74 37
No 126 63
Total 200 100

Objective: to know that whether the investors are trading in derivative market or not.

Graph:

Trading
14 12
0 6
Percent / Frequency

12
0 74
6
10 3
0 3
7
80
60
FrequenciesPercentage
40
Trading
20
0 YesNo

Interpretation: From the above graph out of 200 investors, only 37% investors (74 respondents)
are trading in derivative market and 63% (126 respondents) are not trading in derivative market.

17
2. What is the objective of trading in derivative market?

Frequenc Percentag
y e
Don’t trade 126 63
Not at all preferred 2 1
Neutral 2 1
Somehow preferred 5 2.5
Most preferred 65 32.5
Total 200 100

Objective: To know why they are trading in derivative market.

Graph:

High Return
14 126
0
12
Percent / Frequency

0
6 6
10
3 5
0
32.5
80
60 2 1 2 1 5 2.
5
40
Don’t Not at Neutra SomehowMost preferred
20 trade all l preferred
0 preferre
Preferred
d
FrequencyPercentage

Interpretation: From the above graph we can see that 32.5% investors are most preferred the
objective of high return and 1% investors are neutral while they are trading in derivative market.

18
3. What are the criteria’s have you taken into consideration while investing in
derivative market?
Frequenc Percentag
y e
Don’t trade 126 63
Not at all preferred 2 1
Somehow not 4 2
preferred
Neutral 16 8
Somehow preferred 23 11.5
Most preferred 29 14.5
Total 200 100

Objective: To know that which criteria are consider by the investors while they are investing in
derivative market. Which criteria are most important for them that is whether derivatives are ease
in transaction, less costly, or available of different contract or for the margin money.

Graph:

Ease In Transaction
14 126
0
Percent / Frequency

12
0
10 63
0
80 23 29
16 11. 14.5
60 2 4 2 8
1 5
40
Don’t Not at allSomehowNeutral SomehowMost
20
trade preferred not preferred preferredpreferred
0
Preferred

FrequencyPercentage

Interpretation: From the above graph we can conclude that out of 200 investors 14.5%
investors are most preferred and 1% investors are not at all preferred ease in transaction contract.

19
 4. Give your preference of trading in derivative instrument?

Frequenc Percentag
y e
Don’t trade 126 63
Not at all preferred 1 0.5
Somehow not 1 0.5
preferred
Neutral 15 7.5
Somehow preferred 14 7
Most preferred 43 21.5
Total 200 100

Objective: To know the preference of the investors while they are trading in derivative market.

Graph:

Index Future
140 126
Percent / Frequency

120
100
80 63
60 43
40 21.
15 7.5 14 7 5
20
1 0.5 1 0.5
0
Don’t tradeNot at allSomehowNeutralSomehowMost
preferred not preferredpreferredpreferred
Preferred

FrequencyPercentage

Interpretation: From the above graph we can see that only 0.5% investors are not at all
preferred the index future, 0.5% investors are somehow not preferred, 7.5% investors are
somehow preferred, and 21.5% are most preferred as the preference of their trading in derivative
market.
20
 5. Give your preference in terms of trading in derivative market?

Frequenc Percentag
y e
Don’t trade 126 63
Not at all preferred 4 2
Somehow not 1 0.5
preferred
Neutral 5 2.5
Somehow preferred 10 5.0
Most preferred 54 27.0
Total 200 100

Objective: To know the preference of the investors in terms of trading in derivative market.

Graph:

Intraday
14 126
0
Percent / Frequency

12
0
10 63
54
0
80 27
60 4 5 2.5 10 5
2 1 0.5
40
Don’t tradeNot at all SomehowNeutral SomehowMost
20
preferred not preferred preferredpreferred
0
Preferred

FrequencyPercentage

Interpretation: From the above graph we can see that 27% investors are most preferred the
intraday and 2% investors are not at all preferred the intraday.

21
 6. How much percentage of your income you trade in derivative market?

Frequency Percentage
Don’t trade 126 63
Less than 5% 8 4.0
5% - 10% 25 12.5
11% - 15% 25 12.5
16% - 20% 13 6.5
More than 20% 3 1.5
Total 200 100

Objective: To know investors are how much percentage of their income trade in derivative
market.

Graph:

Income
14 126
0
Percent / Frequency

12
0
10 63
0
80 25 25
8 12. 12. 13 6.5
60 4 3 1.5
5 5
40
20 Don’t trade Less than 5% 5% - 10%11% - 15%16% - 20%More than
20%
0
Preferred

FrequencyPercentage

Interpretation: From the above graph we can see that 12.5% investors invest 5% to 10% income
in the derivative market. While only 1.5% investors are investing more than 20% of their income.

22
 7. What is the rate of return expected by you from derivative market?

Frequency Percentage
Don’t trade 126 63
5% - 9% 21 10.5
10% - 13% 22 11
14% - 17% 23 11.5
18% - 23% 8 4
Total 200 100

Objective: To know the investors expectation towards their investment in derivative market.

Graph:

Rate of Return Expected

14 12
0 6
Percent / Frequency

12
0
80 63
10
060
40 23
21 22
20 10. 11 11. 8
5 4
5
0
Don’t 5% - 10% - 13%14% - 17% 18% -
trade 9% 23%
Rate Of Return

FrequencyPercentage

Interpretation: From the above graph we can see that 11.55 investors are expected the 14% to
17% of their investment and 4% investors are expected 18% to 23% rate of return.

23
8. You are satisfied with the current performance of the derivative market

Frequency Percentage
Don’t trade 126 63
Strongly disagree 8 4
Disagree 14 7
Neutral 18 9
Agree 25 12.5
Strongly agree 9 4.5
Total 200 100

Objective: To know that investors are satisfied with the performance of the derivative market or
not.

Graph:

Satisfaction
14 126
0
Percent / Frequency

12
0
10 63
0
80 25
14 18 12.
60 8 4 7 9 9 4.5
5
40
Don’t Strongl Disagre Neutra Agre Strongl
20
trade y e l e y
0 disagre Preferred agree
e
FrequencyPercentage

Interpretation: From the above graph we can see that 12.5% are agree for satisfaction and 4%
are strongly disagree.

24
 GENDER:

Frequency Percentage
Male 157 78.5
Female 43 21.5
Total 200 100

Graph:

Gender
18
0 15
7
16
0
Frequency

14
0 78
12 .5
0
43
10
0 21.5
80
60
Frequenc Percentag
40 y e
MaleFemale
20
0
Interpretation: From the above graph we can see that there are 157 male investors and 43 female
investors.

25
 AGE:

Frequency Percentage
Below 20 years 3 1.5
20 – 25 years 61 30.5
26 – 30 years 51 25.5
31 – 35 years 43 21.5
Above 35 years 42 21.0
Total 200 100

Graph:

Age
70
61
60
51
50 43 42
Percent

40
30.
30 5 25.
5 21. 21
20 5
10 3 1.
0 5
Below 20 years 20 – 25 26 – 30 31 – 35 years Above 35
years years years
Years
FrequencyPercentage

Interpretation: From the above graph we can see that out of 200 investors 1.5% investors are
below 20 years, 30.5% investors are 20 to 25 years, 21.5% investors are between 31 to 35 years
and 21% investors are above 35 years trading in derivative market.

26
 OCCUPATION:

Frequency Percentage
Student 35 17.5
Employee 82 41
Business 32 16
Professional 22 11
House wife 13 6.5
Others 16 8
Total 200 100

Graph:

Occupation
90 82
80
70
60
Percent

50 41
40 35 32
30 22
17. 13 16 16
20 5 11
6. 8
10
5
0
StudentEmployeeBusinessProfessional House wifeOthers
Occupation

FrequencyPercentage

Interpretation: From the above graph we can see that 17.5% investors are students, 41% are
employees, 16% are business persons, 11% investors are professionals, 6.5% are house wives
and 8% are others, which includes retired persons, farmers and unemployed.

27
 ANNUAL INCOME:

Frequency Percent Valid Cumulative percent

percent
valid 0 47 23.5 23.5 23.5
Less 62 31 31 54.5
than 1
lac
1–5 lacs 73 36.5 36.5 91
6–10 15 7.5 7.5 98.5
lacs
11–15 1 0.5 0.5 99
lacs
15 lacs 2 1 1 100
&
above
Total 200 100 100

Graph:

Annual Income
40 36.5
35 31
30
23.5
25
Percentage

20
15 7.5
10
0. 1
5 5
0 0Less than 11–5 lacs6–10 lacs11–15 lacs15 lacs &
lacabove
Income In Rs.

Interpretation: From the above graph we can see that 23.5% investors don’t have the income,
31% investors have less than 1 lakh annual income, 36.5% investors have less 1 to 5 lakh annual
income, 7.5% investors have 6 to 10 lakh annual income, 0.5% investors have 11 to 15 lakh
annual income and 1% investors have 15 lakh and above annual income.

28
 SUMMARY OF FINDINGS, SUGGESTION AND CONCLUSION

FINDINGS:

 Derivatives market is an innovation to cash market. Approximately its daily turnover

reaches to the equal stage of cash market. The average daily turnover of the NSE
derivative segments.
 In cash market the profit/loss of the investor depends on the market price of the
underlying asset. The investor may incur huge profits or he may incur huge losses. But in
derivatives segment the investor enjoys huge profits with limited downside.
 In cash market the investor has to pay the total money, but in derivatives the investor has
to pay premiums or margins, which are some percentage of total contract.
 Derivatives are mostly used for hedging purpose.
 In derivative segment the profit/loss of the option writer purely depends on the
fluctuations of the underlying asset.
 A large number of investors who invest in derivatives market are well educated persons.
It can be seen that 98.5% of investor respondents are graduates and above, whereas only
1.4% investors are below graduation. 66.9% of investors have not undergone any training
before starting the derivatives trading activity either from the exchanges or broking
entities or any other body. SEBI had made it mandatory only for the employees of the
brokers who are dealing to obtain Equity Derivatives Certification. 33.1% of investors in
the equity derivatives market had undergone some training. However, a whopping 96.4%
of total investor respondents felt that there is a need for all the investors to undertake
some training before starting the equity derivatives trading activity.

29
 SUGESSTIONS:

 The derivatives market is newly started in India and it is not known by every investor, so
SEBI must take steps to create awareness among the investors about the derivative
segment.
 Youth are more concerned for their futures and benefits, but he should also take care of
risk pertaining to particular security on which he invests as it is a matter of money which
he invests in a market.
 People are from higher group of income they invest more in a stock market rather than
any other income group, in my view people are from lower segment, or earning low
should also invest their money in their market there are many other options available, it
gives a return or help them in case of urgency.
 People are investing more in a (1-2) yr. spam they should take care that, investment in
securities is a risk pertaining activity, so he should invest less than 1 year in a particular
security.
 People invest more in a stock market there are many other options available in a market
which gives higher return.
 Recommendation by anyone given only, when he has a positive approach towards stock
market.
 In order to increase the derivatives market in India, SEBI should revise some of their
regulations like contract size, participation of FII in the derivatives market.
 Contract size should be minimized because small investors cannot afford this much of
huge premiums.
 There are a large number of investors who might be staying away from investing in the
equity derivatives market due to lack of knowledge of derivatives. There is a need to
focus on investor education to make them understand the pros and cons of the equity
derivatives.

30
 CONCLUSION:

Derivatives trading in the stock market have been a subject of enthusiasm of research in the field
of finance the most desired instruments that allow market participants to manage risk in the
modern securities trading are known as derivatives. The derivatives are defined as the future
contracts whose value depends upon the underlying assets. If derivatives are introduced in the
stock market, the underlying asset may be anything as component of stock market like, stock
prices or market indices, interest rates, etc. The main logic behind derivatives trading is that
derivatives reduce the risk by providing an additional channel to invest with lower trading cost
and it facilitates the investors to extend their settlement through the future contracts. It provides
extra liquidity in the stock market.
Exchange traded derivatives market helps investors in many different ways in planning the
finances, hedging/mitigating various risks, appropriate price discovery, arbitrage opportunities,
ease of speculations etc. There are various strategic applications, uses and benefits of the equity
derivatives market in the Indian Markets in today’s economic scenario such as providing
efficiency to capital markets, helping investors in mitigating risks, providing equitable price
discovery, comforting foreign investors, creating jobs and developing human capital, preserving
value of assets during stressed market scenario and many more ways.
Banks, Securities firms, companies and investors to hedge risks, to gain access to cheaper money
and to make profit, use derivatives. Derivatives are likely to grow even at a faster rate in future.

31
 BILOGRAPHY

BOOKS:-
 Derivatives Dealers Module Work Book – NCFM (October 2005)
 Fundamentals of financial derivatives

WEBSITES: -

 https://en.wikipedia.org/wiki/Derivative_%28finance%29
 https://narimanhb.com/2011/10/30/different-types-of-derivatives-market/
 https://www.slideshare.net/hemanthcrpatna/a-project-on-derivatives-market-in-india

32
 QUESTIONNARIES

a. Are you investing in derivative market?

Yes
No

b. What are the objectives of investing in derivative market?

Scale 5 4 3 2 1
Instrument Most Somewhat Neutral Somewhat Not at all
preferred preferred not preferred
preferred
High return
Hedge the
risk
More
reliable
Safe to
invest in
derivative
market
More liquid

c. What are the criteria do you take in the consideration while investing in derivative market?

Scale 5 4 3 2 1
Instrument Most Somewhat Neutral Somewhat Not at all
preferred preferred not preferred
preferred
Flexibility
Ease in
transaction
Less costly
Availability
of different
contract
Margin
money

33
d. Give your preference of investment in derivative instrument?

Scale 5 4 3 2 1
Instrument Most Somewhat Neutral Somewhat Not at all
preferred preferred not preferred
preferred
Index future
Stock future
Index option
Stock option

e. Give your reference in terms of investment derivative markets?

Scale 5 4 3 2 1
Instrument Most Somewhat Neutral Somewhat Not at all
preferred preferred not preferred
preferred
Short term
Medium
term
Long term

34
f. How much percentage of income you invest in derivative market?
Less than 5% 5% to 10%
11% to 15% 16% to 20%
More than 20%

g. What is the rate of return expected by you from derivative market?

5% to 9.5% 10% to 13.5
14% to 17% 18% to 23%
More than 23%

h. You are satisfied with the current performance of the derivative in terms of expected
return? Strongly agree Agree
Neutral Disagree
Strongly disagree

35
36