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• The prices in the derivatives market reflects the perception of market participants about the future and lead the prices of the underlying to the perceived future level.

• As derivatives are linked to the cash markets, these markets witness higher trading volumes as more players participate.

• It also acts as a catalyst for entrepreneurial activity.

• It helps in increasing savings and investment in the long run.

Growth of the Derivatives Market

The year 2003 saw a rise in the number of derivatives contracts to almost eight billion from six billion in the year 2002. This was a growth of about 31 per cent, which is considered relatively low in this type of a market. The options market commanded a huge chunk of this derivative market with contracts of 5193 and the futures market had 2730 contracts.

The futures market has increased by 28 per cent in 2003 over the previous year. In the same period the options market has increased by 33 per cent. The market experienced a lower growth of 31 per cent as compared to 39 per cent in the previous year.

The bounce back of the equity markets was responsible for the growth of 31 per cent in 2003. Something worth noting is that despite of the equity markets falling in 2002 the market witnessed a growth of 39 per cent. This suggests a maturing of the derivatives market as investors exploit the risk transference function as well as the speculative one.

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* Contributed by -
Nishant Bachkheti & Aarti Nagarajan,
Core Committee Members, Fin-Niche,
IMT, Ghaziabad.