How to pick a Derivative that provides desired returns?

When it comes to picking a Derivative, there are a few things you need to consider. Different Derivatives offer different benefits, so choosing the one that works best for you is essential. Following are the other Derivatives and some of the factors you should consider when investing in them. 


There are many Derivatives in the market. They include Options, Futures, Currency, Financial, and Nifty Derivatives, among others. However, each has its pros and cons, so it is crucial to understand their strengths and weaknesses. 

Options Derivatives

Options Derivatives are financial contracts that offer the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specific time frame. Options are typically used as a hedging tool to protect against downside risk, but they can be used to speculate on the movement of underlying assets. The most common type is a Stock Option, which gives the holder the right to buy or sell shares of a stock at a set price. 

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Options can be traded on exchanges or Over The Counter between two counterparties. Options are a versatile and powerful tool that can be used in various ways to manage risk and take advantage of market opportunities. 

Futures Derivatives

Futures derivatives are the most popular financial instruments out there. They hedge against risk and can be used to speculate on the future price movements of an underlying asset. They are contracts that give the holder the right, but not the obligation, to buy or sell an asset at a set price at a future date. The most common type here is a Futures Contract, but there are also Options and Swaps. 

Futures Derivatives can be used for hedging against price movements to speculate the market direction. Whether you are a seasoned trader or just starting, it is worth learning about these versatile financial instruments.

Currency Derivatives

Currency Derivatives are financial contracts that derive their value from an underlying currency. The most common is Currency Forward, a commitment to buy or sell a currency at a future date at a predetermined price. Others include Currency Futures, Currency Swaps, and Currency Options. These Derivates are used by businesses to hedge against currency risk and by speculators to bet on future changes in currency prices. 

Since they are traded in the global OTC market, they are subject to very little regulation. As a result, they can be highly volatile and risky investments.

Financial Derivatives

These are financial instruments deriving their value from an underlying asset. The most common type is the Futures Contract, which is an agreement to buy or sell an asset at a future date for a predetermined price. Other Financial Derivatives include Options and Swaps. These can hedge risk, speculate on price movements, or provide leverage. While financial derivatives can be complex instruments, they offer many benefits to investors.

There is no perfect Derivative. It depends on individual goals and risk tolerance. By researching and understanding the different types, you can make a decision that fulfils your investment goals. 

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