What are the different types of derivatives?

There are four different types of derivative contracts-

• Futures contracts: Futures are traded on BSE or NSE exchange and is a standardized contract to buy or sell the underlying at a specified price, at a certain date.

• Forward contracts: Forwards are traded in OTC markets and is a customized agreement between two individuals to buy or sell underlying assets at a specified date, at a certain date in future.

• Options contracts: Options gives the right, but not an obligation, to buy or sell the underlying asset at a certain date and at a specified price. Options are traded in both OTC markets and BSE, NSE exchanges.

• Swaps: It is a contract made between two financial institutions to exchange cash flows in the future. Swaps do not derive their value from any underlying instrument. These contracts are traded in OTC markets only.