Derivative full understanding easily like never before by a story

Derivative

full understanding like never before by a story (very easy).

   In this era, we people are always searching for a place where we can invest our assets, earning or monies, whatever the name you called, so that our future will be secured. This statement is very true that after retirement fragile bone needs rest. But the current scenario of the world force those decrepit bodies to stand again, despite of the fact that you are in a wheelchair.

yes, I understand that our dad and uncles were not so aware of this term called "Derivative". But we can't rely upon that 3%-6 % of bank interest. Because you are not helpless.

Now I  just want you to read the following story to understand how derivative works, by that in future you can earn in corers easily.

story to understand derivatives:-

Ahh: A good sunny day. Iden's garden is full of crowds. India won the toss & going to bat first.

    now at this point, we don't know what will be the score.so some person makes a group & bet.

     let Abhi, a bank employee bets that score will be more than 300.so the bets about the future so it is a forward contract.

  and Manish (not a bank employee) also says the same as him. But in his case, it will be a future contract.

that means 

contract was done by bank in future date      = forward contract

contract was not done by the bank but by stock

 exchange in future date                                    =future contract

if this is done by a person with another person. So it will be known as Dabba trading.

Option:-

      Now some people also want to join but they feel that it is a bit risky, thinking of the fact that if they will lose. Understanding their risk Mr S.E ( stock exchange) comes with a proposal "you don't have to worry. If you think that score will be more than 300 so, I will give you the money more than 300. like If India scores 365 so you will get 365-300 = Rs 65. But if India scores less than 300 still you don't have to give me any money. like if it is 250,200 or 100 I will bere all the loss. but for this, you have to give me a premium at the beginning of the contract like Rs 10.

  Now they think that whatever it is we can gain profit unlimited. like if the score became 400,500 or 1 cr we can earn up to that huge level, while in case of if India all out in even in 0 runs. so instead of losing Rs 300 we only lose Rs 20.
So now this concept is known as an option.
 & the premium you will be paid known as an option premium.

swap:-

     Now again come to the forward contract where you are dealing with the bank. so at this point, there will be lots of person who thinks that score will be less.
Now bank picks you (who think that score will be more) & another person(who think that score will be less). Definitely one will win & other losses. So the bank will collect the money from losser & give it to the winner after cutting some amount as a bank charge. Now this concept is known as a swap.

Now I think your concept became very clear about this. Yes I know that is a trailer "picture abhi baki hay mere dost ☺️" & if you want to be a master in this field so don't worry I, Mousam Roy (semi qualified Cost Accountant) will teach you all that things without any fee. But you have to like ,comment,& share my post and also click the lift bell icon for future update ..Thank you..

           

About Commerce Now

Hi, Myself CMA Mousam Roy having more than 5 years experience in commerce field,teaching field as well as professional field with working with PSU and big Firm.