Equity derivative is a financial class of derivatives whose value can be derived from one or more equity securities. Option and future are one of the most commonly used equity derivative. There are many types of derivative found over the worldwide. Here we are going to discuss a few of them.
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- Stock Option - It is one of the commonly used derivatives by the investor in order to hedge the risk, if a investor is holding a stock option position then he have the right over the stock but not the obligation to sell & buy the assets stock option have liquidity and transparency to work with them. Much care should be taken while trading in option market.
- Single Stock future (SSF)- It is a contract to deliver a particular stock during its designated time. The price of SSF is basically depending on price of an underlying stock plus the cost of interest minus its dividend. Trading in SSF require very low margin.
- Warrants- Warrants are right to purchase a stock over its predetermined date. The price of the stocks here are higher as compared to underlying asset. Unlike stock option warrant price also include time premium.
- Contract for Difference - An agreement where the seller pay the net amount of current value of the stock & its value. CFDS are available to certain countries such as Germany, Japan, Singapore, Africa, France Canada and United Kingdom. The main advantage CFD is its pricing simplicity
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