Limitations of Derivatives

The limitations of derivatives are as follows: Speculative and Gambling Motives: As derivatives offer leveraged positions, it allows participants with even low capital to indulge in high volume trading. While it magnifies the gains, it also leads to higher losses …

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Importance of Derivatives

The importance of derivatives are as follows: Reflect Perception of Market Participants: In a developed and organized market, the price of the derivatives will show the view of market participants about the future course of action for the market. It …

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Role of Derivative Market

Despite the fear and criticism with which the derivative markets are commonly looked at, these markets perform several economic functions: 1) Management of Risk: Financial derivatives allow for the efficient management of financial risks and can help to ensure that …

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