About Derivatives
What is Derivative ?
Participants in Derivative Market
Why Derivatives ?
Products in Derivative Market
About Derivatives
Why Derivatives ?
What is Derivative ?
Participants in Derivative Market
Products in Derivative Market
What is Derivative ?
Theoretically…
Derivative are financial instrument that derive their value from other
existing asset classes known as underlying.
The term "Derivative" indicates the instrument derives its values entirely
from the asset it represents be it :
• Equity, forex, commodity, rate of interest or any other asset
• Eg. Sensex, Nifty
What is Derivative ?
Lets Demystify term “Derivatives”…!!!
Simply put, when you invest in derivatives, you actually trade on
whether the value of the asset represented will increase or decrease
in value and within a set period of time.
As the derivative markets deal in speculation, there is a large amount of
risk involved
About Derivatives
Why Derivatives ?
What is Derivative ?
Participants in Derivative Market
Products in Derivative Market
Why Derivatives…???
• It requires much lower initial investment
• Margin as Low as Rs 800 for intraday NIFTY futures at ICICIdiect.com
• You can also use limit created by blocking shares in fnO
• Wide range of instruments available like:
• Index – NIFTY / CNX BANK NIFTY / CNX IT
• Currency - USD / JPY / EURO / GBP
• Interest Rate
• Non-linear Pay-off
• Limited Loss : Unlimited Profit in case of Option buying
• Adjust your Risk : Reward
Ex: Consider a risk-averse individual. He can obviously reduce risk by
hedging. When he does so, the opposite position in the market may be
taken by a speculator who wishes to take more risk.
• Serves as a Hedging tool for your Portfolio
• A tool for short-term Speculation
About Derivatives
What is Derivative ?
Why Derivatives ?
Participants in Derivative Market
Products in Derivative Market
Participants in Derivative Market
• Hedgers - Hedgers are cautious players who protect themselves from
risk. They use futures for protection against adverse future price thereby
looking to reduce risk for their holdings and interest
• Speculators -Speculators are the high risk takers. They bet on future
movements of prices based on their skill and knowledge levels.
Derivatives give them an extra leverage, by which they can increase both
the potential gains and losses. Speculators always take calculated risks.
A speculator will accept a level of risk only if he is convinced that the
associated expected return, is commensurate with the risk that he is
taking.
• Arbitrageur– Arbitrageurs take advantage of discrepancy between prices
in two different markets. Arbitrageurs keep market prices stable and
reducing possible exploitation of prices. They are typically the most
experienced market players who make fast decisions.
About Derivatives
What is Derivative ?
Why Derivatives ?
Products in Derivative Market
Participants in Derivative Market
Products in Derivatives Market
Derivatives
Futures Forward Options
CALL PUT
Highlighted options are only allowed
trading on Exchange
What is Futures Trading
A 'Future' is a contract to buy or sell the underlying asset for a
specific price at a pre-determined time & date.
• If you buy a futures contract, it means that you promise to pay the
price of the asset at a specified time.
For easy understanding, it means that you actually place a trade on
the value of the asset will increase.
• If you sell a future, you effectively make a promise to transfer the
asset to the buyer of the future at a specified price at a particular
time.
For easy understanding, it means that you actually place a trade on
the value of the asset will decrease.
Future terminology
Spot Price - Price at which an asset or underlying trades in the spot market
Future Price - Price at which futures contract trades in the futures market
Contract Cycle - Period over which a contract trades. Derivatives contracts
have one, two and three months expiry cycles. Contracts expire on last
Thursday. New contracts are release on Friday
Expiration Day -Date specified on the derivatives contract. It’s the last
Thursday and the last day for the contract to be traded. Contract will cease to
exist from this day and will be settled at the closing price of the underlying.
Tick Size – Minimum size difference, like 0.05 index point (i.e. Re 0.05 or 5
paise)
Lot Size – Minimum quantity that is available for trade. You can only trade in
multiple of lot size.
Initial margin - Amount that must be required to initiate a futures position
Marking to Market -In futures, at the end of each trading day, the margin is
adjusted to settle the investors’ gain or loss for that day depending upon the
futures closing prices. This adjustment is called Daily MTM
Product Specification
•Futures contracts are designated by the month in which they expire.
•In India, futures contracts in NSE have a maximum trading cycle of 3
months. This simply means that, at any given point in time, one can
choose between contracts of 3 months. They are designated as :
•Near month : Contract expiring in the current month.
•Next Month : Contract expiring in the next month.
•Far Month : Contract expiring in the next to next month.
•For example in June 2015, 3 contracts are available :
Month Expiry Designation
June 2015 Last Thursday, Jun 25 Near Month
July 2015 Last Thursday, July 30 Next Month
August 2015 Last Thursday, Aug 27 Far month
Option Trading
Theoretically…
• An Option is a contract that gives the right, but not an obligation, to
buy or sell the underlying on or before a stated date and at a stated
price.
• While buyer of option pays the premium and buys the right,
writer/seller of option receives the premium with obligation to sell/
buy the underlying asset, if the buyer exercises his right.
Option Trading
Lets Demystify term “Options”…!!!
Option contracts are available on the underlying asset on various strike
prices divided equally on either side of its spot price.
Options trade like stocks, with buyers making bids and sellers making
offers, the only difference is these bids and offers are for the various strike
price of the underlying.
Investors/Traders trade on these strike prices and therefore strike price has
a value which fluctuates depending on demand supply/movement of the
underlying, which is called a premium.
Premium is a small fraction of the price of the underlying. By paying this
premium we can limit our risk.
Option premium which is different for every strike price. The buyer of the
option pays the premium and the seller receives the premium .When you
buy an option, you have rights. When you sell an option, you have
obligations. That's why option sellers are paid – to accept those obligations.
Options terminologies before entering trade
• Index option -Have index as the underlying
• Stock option - Have stock as the underlying
• Option price / premium - The price that the buyer of an option
contract pays to the seller for entering into option contract
• Open Interest - The total number of outstanding contracts on a given
series or for a given underlying at a particular point in time
• Strike price / Exercise price -Price at which the underlying may be
purchased or sold
• Exercise of Options - Invoke the rights approved to buyer of option
only on day of expiry.
• Assignment of Options -When the buyer of an option exercises his
right on expiry day to buy / sell, a randomly selected option seller (
at the client level ) is assigned the obligation to honor the underlying
contract.
Types of Options – CALL OPTION
Call option: A call option gives the holder (Buyer) the right but not the
obligation to buy an asset by a certain date for a certain price.
For easy understanding, Let’s say we wish to take a BUY position on a
CALL option. In that case, we will have the right but not the
obligation to BUY the underlying asset. So, if the spot price of the
underlying moves against the Strike Price, we can simply let it go, or
refuse to BUY. That’s where the word “Options” comes from.
Long (Buy) call:- A call option is bought by a person who is bullish on
the underlying.
Short (Sell) call:- A call option is sold by a person who is moderately
bearish on the underlying.
Types of Options – PUT OPTION
Put option: A put option gives the holder (buyer) the right but not the
obligation to sell an asset by a certain date for a certain price.
Long (Buy) Put:- A Put Option is bought if the view is bearish on the
underlying. It is also bought to hedge/protect the stock portfolio.
Short (Sell) Put:- A Put Option is sold if the view is moderately bullish
on the underlying
About Derivatives
What does ICICIdirect.com has to offer..?
What is Derivative ?
Participants in Derivative Market
Why Derivatives ?
Products in Derivative Market
ICICIdirect.com Product Basket
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Shares as
Margin
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OptionPlus
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Options
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Margin
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Broking Products
FnO (Derivatives)
Options
OptionPlus
Currency
Futures
Currency
Options
Interest Rate
Futures
Futures
FuturePlus
FuturePlus Stop
Loss
In futures trading, you take buy/sell positions in index or
stock(s) contracts expiring in different months. To take
the buy/sell position on index/stock futures, you have to
allocate certain % of order value as margin.
Future
Future Plus
You could take buy/sell positions in future contracts with
the intention of squaring off the position on the very
same day before close of market hours. It attracts lower
Margin
Future Plus
ICICIdirect.com Product -Derivatives
Future Plus Stop Loss
Intraday Position with 0.25% - 4% margin
Position with Compulsory Stop Loss Trigger Price to limit
the loss
Future Plus Stop
Loss
Modify Allocation – Fund Transfer
Before you start trading in FnO, you need to allocate funds from your linked
bank A/C. The same can also be done at the time of order placement.
In futures trading, you take buy/sell positions in index or
stock(s) contracts expiring in different months. To take
the buy/sell position on index/stock futures, you have to
allocate certain % of order value as margin.
Future
Future Trading with ICICIdirect
• You can Calculate the Margin using “Margin Calculator” link
• You can “View your FnO limit” and Best 5 Bid / Offer
• You can also Allocate Funds
Futures Open Position
• It shows your Margin Details for each of your positions. “Margin on
Position” is the blocked amount
• Ensure that the “Available Margin” > “Minimum Margin”
• You can Square-off / Rollover / Convert to FP
Future Plus
You could take buy/sell positions in future contracts with
the intention of squaring off the position on the very same
day before close of market hours.
Future Plus Stop Loss
Intraday Position with 0.25% - 4% margin, as low as Rs 800
Position with Compulsory Stop Loss Trigger Price
Future Plus
Future Plus Stop Loss – Open Position
• See your all FPSL open positions in this page
• It shows your unrealized P/L for your individual position as well as
Grand Total for all your open positions
• You can square-off your position by clicking on “Modify”
Shares as
Margin
F&O Product Basket
ICICIdirect.com
Broking Products
FnO (Derivatives)
Futures
FuturePlus
FuturePlus Stop
Loss
Currency
Futures
Currency
Options
Interest Rate
Futures
Options
OptionPlus
Options is trading on Index or Stocks contracts expiring in
different months with various strike prices. Suitable for
investors who prefer to cash in - on the trends in market, for
the purpose of high returns
Options
You can create Short Position with nominal Margin
Limited losses, as position taken with compulsory Stop loss
Trading in option attract lower STT
No overnight risk
Option Plus
• It shows your unrealized P/L for your individual position as well as
Grand Total for all your open positions
• Click on “SquareOff at Market” to exit from the position
Option Plus– Open Position
Shares as
Margin
F&O Product Basket
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Options
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Broking Products
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Futures
FuturePlus
FuturePlus Stop
Loss
Options
OptionPlus
Currency
Futures
Currency
Options
Interest Rate
Futures
Shares as
Margin
Source of Margin
There are 2 sources of Margin which you can use:
1. Cash Margin
2. Shares as Margin (SAM) - Limit against Shares
Salient Features of SAM
• Instant Securities Limits available against Shares Blocked as Margin.
• Trade in Equity and F&O segment with Zero Cash Limits
Benefits
• No charges to be paid to Block or Unblock
• SPOT Sell facility is instantly available for the blocked securities.
• Cash Sell order can be instantly placed for the securities which are
unblocked /reduced.
Shares as Margin (SAM)
Securities limit is used as a margin for taking exposure in FnO
ICICIdirect.com gives first preference to the limit created by blocking the
shares at the time of taking Positions in FnO. Once this limit is
exhausted, it uses the Funds available in your FnO Allocation
Please note that funds will be required for the following instances:
• Settlement dues arising from MTM losses on Futures positions
• Premium payments for Options bought
• Square off losses on Futures
• Brokerage (inclusive of other charges) applicable on the transactions.
You can block your securities with
ICICIdirect.com to create Limit for trading in FnO
No charges
Unblock your shares instantly
Shares as Margin
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Trading Platforms
Flow of the Presentation
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FnO @ Fingertips
FnO @ Fingertips
Traders require information to take trading Decisions.
This module provides you access to exclusive coverage of FnO
activities at your Fingertips
You get to see the following data:
• Snap-shot of Futures / Options Market
• FII Derivative Activity
• OI Heat Map
• Put Call data
• Advance Decline Ratio
• Sector Watch
• Event Calendar
• Screeners
• Unusual Activities
ICICIdirect.com Product Basket
FnO @ Fingertips
Trading Platforms
Flow of the Presentation
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Derivative Research
Derivative Research
For Intraday Traders
• Daily Calls – On the basis of Technical Analysis
• Daily Derivatives – On the basis of Derivative Activity
• Daily Support & Resistance – Based on Prev. day’s O-H-L-C
For Positional Trades
• Weekly Calls – On the basis of Technical Analysis
• Weekly Derivatives – On the basis of Derivative Activity
Sample – Daily Derivatives Report
• FnO Highlights : Previous day’s Derivative activity
• Index Outlook : Expectation for the day, Trading Range, Levels
ICICIdirect.com Product Basket
FnO @ Fingertips
Flow of the Presentation
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Trading Platforms
Web-based Platforms
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Trade Racer Web
Applications
Trade Racer (Desktop App)
Mobile Apps for
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Mobile Apps for
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Web-based Platforms
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Trade Racer Web
Applications
Trade Racer (Desktop App)
Mobile Apps for
Low Bandwidth Site (LBS)
ICICIdirect.com Website
Low Bandwidth Site (LBS)
• This site is especially made
for Mobile Browser where
the user can enjoy seemless
trading experience.
• User can also access this on
desktop with slow internet
connection.
Web-based Platforms
Trading Platforms
Applications
Trade Racer (Desktop App)
Mobile Apps for
Trade Racer Web
ICICIdirect.com Website
Low Bandwidth Site (LBS)
Trade Racer Web
• Web-based application with Live Streaming
• Customize your Screen with multiple Widgets and Market Watch
• Stock alerts
Web-based Platforms
Trading Platforms
Applications
Mobile Apps for
Trade Racer (Desktop App)
ICICIdirect.com Website
Low Bandwidth Site (LBS)
Trade Racer Web
Trade Racer (Desktop App)
• Live Streaming Quotes + Upto 5 Market Watch.
• Advanced Market Scanners and Charting Tool
• Customize your Desktop.
Applications
Mobile Apps for
Web-based Platforms
Trading Platforms
ICICIdirect.com Website
Low Bandwidth Site (LBS)
Trade Racer Web
Trade Racer (Desktop App)
Mobile Apps
For Android For I-Phone For Windows
• Mobile Phone Apps are available for Android, I-phone and Windows
• Live streaming + Order Placement + Open Positions tracking
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Call N trade
Click to Call
• Receive a free call back from our representative on your registered
mobile number
• They will assist you with the queries related to trading, product features
and will also assist you on using ICICIdirect.com website
• You need to login and click on the icon “Click to Call”
• Trade effortlessly over the phone with Call N Trade
• You can place trades instantly with dedicated numbers and 2 step IVR
• This facility is especially useful for those of our customers who are on
the move or prefer to trade over phone
Metros and Tier I Cities : 3355 1122
Other Cities: 3355 112
What about trading charges…?
Brokerage Plans
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Innovative Brokerage Plans
You have the flexibility to choose any of the below
mentioned brokerage Plan that suits your trading
needs
• Life time Prepaid Plans
• 195 Plan for Option traders
• I-Gain Plan for Intraday FnO Traders
Prepaid Plans
• You pay an up-front brokerage which will be valid for 15
years
• Choose from 7 different plans starting from Rs.10,000 to Rs.3
Lacs
• You also get 18 - 84% savings on your brokerage depending
on the card you have selected
195 brokerage Plan
• Brokerage will be levied depending on the number of lots for
which order is placed.
• Orders for 1 lot will be charged brokerage Rs 95.
• Orders for more than 1 lot upto 10 lots will be charged flat
brokerage of Rs195
• Orders for more than 10 lots would be levied brokerage of
Rs195 and incremental Rs15 per executed lot above 10 lots.
For eg if you place an order for 15 Lots, you would be charged
Rs195 + Rs 15*5 (incremental traded lot above 10 lots) = 270
Hence your effective brokerage is Rs18 per traded lot.
Please note that the positions which are squared off intraday
would be levied aforesaid brokerage.
I-Gain Plan for Intraday traders
• This scheme is valid only
for the intra-day trades
done in Nifty contracts in
stop loss products namely:
• Future Plus Stop Loss
• Option Plus
• Brokerage will be charged
only on the intraday legs of
profitable trades
• Calculation of profit or loss
will be done at order level
Traders Strategies
1. Optimistic Trader
• Very optimistic about decision
• Invest in full at a particular point
2. Linear Trader
• Semi Active Trader
• Invest equal quantity at every fall in market
3. Non Linear Trader
• Active Trader
• Invest more quantity at every fall in market
Derivative Trading Risks
• Since Derivative works on leveraging, the traders are
exposed to higher profits as well as the potential of higher
losses. You may lose your capital
• Always maintain sufficient free limit to provide for Margin
amount as and when required to avoid the broker to close out
your position
• Before trading on F&O, you should ensure that:
• You have understood the trading and settlement mechanism of
the exchange
• You can lose more money than you have invested
• You would not be tempted to over leverage your positions
• You can protect yourself by knowing how F&O Trading works.
Judge for yourself whether it is prudent for you to trade on F&O
in light of your financial resources, investment objectives, and
tolerance for risk.