The market is a complex system of individual, professional, and institutional investors who make decisions based on their own viewpoints and interests. Just like in any other market, the law of supply and demand is valid in this market too. Some factors, like the rate of inflation, have the potential to drive the market higher or lower. Other factors, such as corporate earnings, may cause a single firm or an entire sector to change direction, says Rajesh K – Director – Aliceblue.
Individual investors must consider their unique investing horizons and stock holding capabilities when deciding where to invest for the best results. Shorter investment time frames are riskier due to higher volatility in stock prices.
The Indian stock markets are ripe with possibilities for generating capital. Many investors put their money in the stock market in order to build wealth over a long time. Thus they are likely to remain committed for a period varying from a few months to many years. Meanwhile, short-term investors can make money by trading instruments for short periods of time. Intraday traders, in particular, focus on the short term and close out their trades within a single trading day.
Equities are the most often traded and invested assets on the Indian stock markets. Stocks in India are just one of the many financial instruments available for trading on the exchanges.
There is a clear correlation between the amount of risk and the amount of profit. The smaller the risk, the lesser the returns, whereas the higher the risk, the higher the returns. Market-linked investments, as opposed to fixed-income products, are required if one wishes to achieve sizable returns. It is aptly said, buy fear and sell greed; good news and favorable prices are incompatible. However, the environment has changed dramatically; interest rates will only rise further, crude and energy costs have risen, and demand has been crushed. As a result, the framework has been completely altered as per Mr. Rajesh K – Director – Aliceblue.
Despite all the chaos, derivatives are the instruments that can help investors and traders bring some positivity to their portfolios. According to the most recent estimates, the derivatives market has a notional value of more than 1 quadrillion dollars on the high end, but by some analysts, this value is widely overestimated. As of 2021, there is a significant disparity between the notional and actual netting value of derivatives—$600 trillion against $12.4 trillion.
The real size of the derivatives market is determined by what a person perceives to be a part of the market and hence what data is included in the calculation. The higher estimates are obtained by adding the notional value of all accessible derivatives contracts.
Some analysts indeed believe that calculating the value of derivative contracts based on their underlying assets, such as stocks or bonds, does not adequately reflect market value, but there are others who believe that such a calculation does reflect reality.
Derivatives are effectively legally binding contracts between parties that are purchased or sold as bets on (or hedges against) the future price movements of the underlying securities. Therefore, the prices of derivatives depend on the values of their underlying assets.
A point to note here is that, although derivatives are instruments to hedge your positions and minimize your risks, they are only effective if done with proper knowledge and after understanding all the consequences. Alice Blue does not recommend any particular instrument; instead, they provide the necessary insights on the same, and you may take your stand later on.
Alice Blue has been working innovatively toward derivatives trading and has introduced various tools that help you hedge your positions effectively. Visit their website to learn more https://aliceblueonline.com/.