Difference Between Equity Markets and Derivative Markets

difference between equity markets and derivative markets

The Difference between Equity markets and Derivative markets can make sense about how trade is in these two. Performed depending on the price of stocks and both are included with same stock instruments but one gives us delivery for long-term hold other can have expired with the specified date.

Read more: Difference Between Equity Markets and Derivative Markets
  • What is Equity Markets
  • Types of Derivatives performed in markets
  • How Derivative Markets in India
  • Diverse Perspectives on Derivative Markets

What is Equity Markets

Equity markets are financial markets where stocks and other equity securities are bought and sold. These markets essentially provide a platform for companies to raise capital by allotting stocks, and for investors to get buy and sell these stocks in the hope of earning a return on investment. In India, the two major equity markets are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

The BSE was founded in 1875 and is Asia’s oldest stock exchange. The exchange offers a platform for trading in stocks, debt instruments, derivatives like futures and options markets, mutual funds, and exchange-traded funds (ETFs). The NSE was established in 1992 and has emerged as the largest stock exchange in India, accounting for more than 90% of the equity market turnover in the country. The exchange offers to trade in various segments such as equities mean delivered, derivatives mean traded, and debt instruments.

Equity markets in India have evolved significantly over the years, with a growing user base of retail and institutional investors might be domestic or foreign. According to reports from the Securities and Exchange Board of India (SEBI), the total market capitalization of all companies listed on the BSE and NSE was ₹ 230.31 lakh crore as of July 2021. The equity markets in India have been buoyant in recent times, with the BSE Sensex and NSE Nifty50 indices delivering double-digit returns year-to-date as of July 2021.

Despite their popularity, equity markets carry risks and can experience periods of volatility. It is, therefore, crucial for investors to do their research and invest in a diversified manner to mitigate risks.

Equity markets provide investors with an opportunity to invest in stocks of various companies and benefit from their capital growth over the long term. These markets, such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), allow investors to buy or sell listed shares in the form of equity.

In equity markets, investors can choose between two types of transactions: cash delivery or derivatives. Cash delivery involves buying shares outright and carrying out the delivery of the shares. In contrast, derivative transactions involve buying or selling shares based on a contractual obligation to buy or sell the shares at a future date. Derivative contracts are used to manage risks and speculate on the future direction of share prices.

The NSE and BSE are two of the biggest equity markets in India and offer various investment options. In these markets, investors can buy shares for the long term, benefit from capital growth, and earn regular dividend income. These markets are regulated by the Securities and Exchange Board of India (SEBI) to protect investors’ interests and ensure a transparent and fair-trading environment.

Equity markets play a critical role in the economic growth of any country. They provide companies with a means to raise capital and fund their growth. This will create job opportunities and boosts economic development. The equity market allows investors to benefit from the growth potential of companies and earn returns on their investments. For the investment to Equities need t know about Fundamental Analysis

Investing in equity markets requires a long-term perspective. Investors need to evaluate the performance of companies, study market trends, and make well-informed investment decisions. Investing for the long term offers investors the chance to reap the benefits of compounding returns resulting from the growth in a company’s assets and earnings.

In conclusion, equity markets provide investors with an opportunity to invest in the stocks of various companies and benefit from their capital growth over the long term. The NSE and BSE provide a transparent and fair-trading environment for investors, and the regulations provided by SEBI help protect investors’ interests. Investors who invest in the equity markets need to have a long-term view and make well-informed investment decisions based on a company’s performance and future growth potential. With the right strategy of investment, investors can make profits from the growth potential of companies and earn returns on their investments.

What are Derivative Markets?

Types of Derivatives performed in markets

There are several types of derivatives, including futures, options, swaps, and forwards. Futures are contracts that obligate the buyer to purchase an asset at a predetermined price and date in the future. Where options give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price and date in the future. Swaps are contractual agreements among two parties to exchange cash flows based on different financial instruments. Forwards are contracts that obligate the buyer to purchase an asset at a predetermined price and date in the future, but unlike futures, forwards are not traded on an exchange.

How Derivative Markets in India

In India, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the two main exchanges for trading derivatives. The NSE has a market share of over 90% in the derivative segment. The NSE offers several derivative products including an index of futures, index of options, stock futures, and options.

According to the latest data from the NSE, the average daily turnover in the derivative segment was Rs. 17.31 lakh crore in December 2020. The turnover in the index futures segment was Rs. 4.22 lakh crore, while the turnover in the stock futures segment was Rs. 7.57 lakh crore. The turnover in the index options segment was Rs. 4.87 lakh crore, while the turnover in the stock options segment was Rs. 0.65 lakh crore.

Diverse Perspectives on Derivative Markets

Derivative markets have been a subject of debate among investors, regulators, and policymakers. Supporters argue that derivative markets are providing liquidity, price analysis, and risk-level management tools to market participants. They also argue that derivative markets help in reducing volatility in the underlying asset markets. Derivatives are daily traded scrips and to trade in the derivative markets like futures and options must learn about Technical Analysis.

Critics, on the other hand, argue that derivative markets can lead to excessive speculation, market manipulation, and systemic risk. They also argue that derivative markets can amplify market movements and lead to financial instability.

In conclusion, derivative markets are an important part of the financial system, and they offer several benefits to investors. However, it is important to regulate these markets effectively to prevent excessive speculation and market manipulation. It is also important to monitor these markets closely to prevent systemic risk and financial instability.

What is Nifty and Sensex, Listed Companies of Nifty

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What is Nifty and Sensex If you are a beginner at the stock market if you are searching a word about the stock market the first question generates in your mind exactly this question here we will clear your consequence about mentioned words…

Nifty and Sensex both are nothing but indices, oh sorry actually we should have to explain to you what is indices or index let me do it first.

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INDEX

An index is a singular word of indices, the index is combined price of top performance companies which is placed in Large capital market place in that stock exchange, if we take “Nifty50” is an index of National Stock Exchange (NSE), Delhi established similarly “Sensex” is an index of Bombay Stock Exchange (BSE) currently, we have only two stock exchanges under working in national-wide stocks those are BSE & NSE.

As similarly in every country many of exchanges have their index like the USA have Nasdaq and Dow zones, the indices are can trade in other countries also.

NSE (National Stock Exchange)

Nifty50 is an index of the National Stock Exchange, Delhi and it was established in 1992 but it was commenced operations in 1994 after that up to 2016 it was growing like completely as every operation can do, and all Indian industries and companies would begin trade.

Nifty50 is gain structured with top 50 companies (Nifty listed companies mentioned below)  which are well performed and large capital companies those companies are separate weightage (Nifty weightage) in this index as per their performance. If we buy the future of Nifty50 (Futures and Options will explain in further articles now you can imagine future means share price of Nifty50) the price will divide those  Nifty listed 50 companies as per their weightage you can find every six months updated data in www.nseindia.com

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In a day these Nifty 50 company’s stocks are traded in bullish, the market can be in bullish on behalf of Nifty 50 index similarly bearish. And NSE has more indices like Nifty Next 50 (Nifty listed companies with Mid Cap) Nifty100, Nifty500, Nifty Mid Cap, Nifty Small Cap but there are only indicates those stocks are being in bullish or bearish those are not to trade in the market, recently Nifty Fin (Nifty Financials) is coming to trading in the market of NSE stock exchange this has structured with financial companies stocks.

Nifty50 is well diversified by the top 50 companies top constituents mentioned below and this weightage is modified every six months in a year as per up-downs of company performance.

Nifty listed Companies individual weightage July, 2021

S.No

Company Name

Sector

Weightage

1

Reliance Industries

Energy – Oil & Gas

10.01%

2

HDFC Bank

Banking

9.59%

3

Infosys

Information Technology

8.60%

4

HDFC

Financial Services

6.55%

5

ICICI Bank

Banking

6.41%

6

Tata Consultancy Services

Information Technology

5.08%

7

Kotak Mahindra Bank

Banking

3.67%

8

Hindustan Unilever

Consumer Goods

3.24%

9

Axis Bank

Banking

2.83%

10

Larsen & Toubro

Construction

2.66%

11

ITC Limited

Consumer Goods

2.60%

12

State Bank of India

Banking

2.36%

13

Bajaj Finance

Financial Services

2.34%

14

Asian Paints

Consumer Goods

1.98%

15

Bharti Airtel

Telecommunication

1.82%

16

HCL Technologies

Information Technology

1.57%

17

Maruti Suzuki

Automobile

1.47%

18

Tata Steel

Metals

1.34%

19

Wipro

Information Technology

1.18%

20

Ultra Tech Cement

Cement

1.15%

21

Mahindra & Mahindra

Automobile

1.09%

22

Bajaj Finserv

Financial Services

1.07%

23

Sun Pharmaceutical

Pharmaceuticals

1.07%

24

Titan Company

Consumer Durables

1.06%

25

Tech Mahindra

Information Technology

1.00%

26

Dr. Reddy’s Laboratories

Pharmaceuticals

0.97%

27

JSW Steel

Metals

0.97%

28

Nestle India

Consumer Goods

0.92%

29

IndusInd Bank

Banking

0.90%

30

Tata Motors

Automobile

0.89%

31

Power Grid Corporation of India

Energy – Power

0.87%

32

Grasim Industries

Cement

0.84%

33

HDFC Life

Financial Services

0.83%

34

Divi’s Laboratories

Pharmaceuticals

0.82%

35

NTPC

Energy – Power

0.81%

36

Hindalco Industries

Metals

0.80%

37

Bajaj Auto

Automobile

0.79%

38

Adani Ports

Infrastructure

0.76%

39

Cipla

Pharmaceuticals

0.72%

40

Tata Consumer Products

Consumer Goods

0.66%

41

SBI Life Insurance Company

Financial Services

0.65%

42

Bharat Petroleum

Energy – Oil & Gas

0.64%

43

United Phosphorus Limited

Chemicals

0.64%

44

Britannia Industries

Consumer Goods

0.63%

45

Oil and Natural Gas Corporation

Energy – Oil & Gas

0.63%

46

Eicher Motors

Automobile

0.55%

47

Hero MotoCorp

Automobile

0.55%

48

Shree Cements

Cement

0.54%

49

Coal India

Metals

0.45%

50

Indian Oil Corporation

Energy – Oil & Gas

0.40%

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Nifty listed companies Sector-wise diversification

S.No

sector

weightage

1

Financial Services sector

2

Information Technology

3

Oil & Gas​​​

4

Consumer Goods

5

Automobiles

6

Metals Industries

7

Pharma  Industries

8

Construction sector

9

Cement & Cement Products

10

Telecom Sector

11

Power and Energy

12

Services

13

Fertilizers and Pesticides

SENSEX

BSE (Bombay Stock Exchange)

Sensex is also known as S&P Bombay Stock exchange Sensitive Index or simply the SENSEX, an index of BSE ancient stock exchange in India, established in 1875 in Bombay (Mumbai) South Asia oldest stock exchange and the world 9th largest exchange it was started by Premchand Roychand gathered with 5 stockbrokers on 31st August 1957 BSE became first stock exchange recognized by the Indian government under Security Contract Regulation Act. In 1986, and called also DALAL STREET, the BSE developed the S&P BSE SENSEX index and it is developed by Deepak Mohoni is a stock market analyst is started with 750 points, now it is hit the 50000 points high.

Sensex is the combined price of 30 top most performed companies in BSE this index is calculations are based on the free-float market capitalization method.

For more data, you can visit www.bseindia.com

Sensex listed companies individual weightage up to July 2021

S.No

Company Name

Sector

Weightage

1

Reliance Industries Limited

Energy – Oil & Gas

11.99%

2

HDFC Bank

Banking

11.84%

3

Infosys

Information Technology

9.06%

4

HDFC

Financial Services

8.30%

5

ICICI Bank

Banking

7.37%

6

Tata Consultancy Services

Information Technology

5.76%

7

Kotak Mahindra Bank

Banking

4.88%

8

Hindustan Unilever Limited

Consumer Goods

3.75%

9

ITC Limited

Consumer Goods

3.49%

10

Axis Bank

Banking

3.35%

11

Larsen & Toubro

Construction

3.13%

12

Bajaj Finance

Financial Services

2.63%

13

State Bank of India

Banking

2.59%

14

Bharti Airtel

Telecommunication

2.31%

15

Asian Paints

Consumer Goods

1.97%

16

HCL Technologies

Information Technology

1.89%

17

Maruti Suzuki

Automobile

1.72%

18

Mahindra & Mahindra

Automobile

1.48%

19

UltraTech Cement

Cement

1.40%

20

Sun Pharma

Pharmaceuticals

1.16%

21

Tech Mahindra

Information Technology

1.11%

22

Titan Company

Consumer Durables

1.11%

23

Nestle India

Consumer Goods

1.07%

24

Bajaj Finserv

Financial Services

1.04%

25

IndusInd Bank

Energy – Power

1.03%

26

Power Grid Corporation of India

Banking

1.03%

27

Tata Steel

Metals

1.01%

28

NTPC

Energy – Power

0.94%

29

Bajaj Auto

Automobile

0.86%

30

Oil and Natural Gas Corporation

Energy – Oil & Gas

0.73%

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finally, you have got a sense about what is Nifty and Sensex and known about Nifty listed companies and Sensex Listed Companies in this post is very useful to those who want to learn the stock market and where to start they do not know persons do get knowledge from this article.

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