Editorial -- Opportune move
Since the country’s doors were opened to foreign investment, foreign institutional investors have been asking for a hedge. Many claim that its non-availability is restricting their exposure to India.

Just in time
Ever since trading on the stock markets got computerised, there has been a demand from institutions for a hedging product to reduce risk. Though the proposal to introduce stock index futures, the simplest of derivatives, was mooted a long time ago, it did not happen for two reasons.

Badla -- The only hedge
To say that derivatives' trading is new to the Indian stock markets would be incorrect. While some argue that the current T+5 trading period itself is a forward market, there is the badla or carry-forward market too, which has been in existence for a long time now.

Strategic uses of stock index
Derivatives or a future or an options contract is relatively new having emerged only around 25 years back. It essentially facilitates temporary hedging of the price risk inventory or a financial/commercial transaction over a certain period.

How do I trade ?
There has been a lot of hype created about the imminent advent of derivative trading in India accompanied by a lot of individual concern. But then trading in derivatives has always existed at some point of time or the other.

The watch-dog gives the nod
Come February and derivatives' trading will culminate at the Indian bourses. The LC Gupta and JR Varma committees, set up by the Securities and Exchange Board of India (Sebi), had explored the scope and the risk management aspects of the instrument.

India’s millennium move
There is no denying the fact that the Indian stockmarkets have come a long way. From the open outcry ring trading system, which used to witness multi-million deals struck in a mere couple of hours, today deals are struck via computers.

Price Perfect -- Pricing of stock index futures
A look at how the stock index futures are priced is vital. A market index is usually a large well-diversified portfolio and is an approximation to returns obtained in the overall economy.

What are futures and options?
A futures contract is plainly 'a contract'. It is a contract to take delivery of a product in the future, at a price set now. It is not equity in a stock or commodity. For instance, if a farmer decides in April to buy 5 kgs of tomatoes for Rs 10 from a tomato trader to be delivered when ripe in July, the farmer is said to have entered into a futures contract.

Rogue’s on the prowl
Dec 10, 2005. Bharat Arora sits in a smoke filled room in front of his PC in an obscure town in India busily tracking derivatives’ in the global market. A Phd in music, Arora applies the music theory to make money in derivatives' trading. It may sound ridiculous, but yes he believes that the indices have to move randomly but in a pattern based on scales.

"We are well placed in our systems"
With Sebi having given the nod to usher in derivatives’ trading on the Indian bourses, the NSE is likely to begin trading in stock index futures shortly. NSE vice president and head of the derivatives segment, Ashish Kumar Chauhan -- an alumnus of IIT Mumbai and IIM Calcutta.