INTODUCTION Derivatives are financial instruments whose value is derived from the value of something else.

They generally take the form of contracts under which the parties agree to payments between them based upon the value of an underlying asset or other data at a particular point in time. The main types of derivatives are futures, forwards, options, and swaps. The main use of derivatives is to reduce risk for one party while offering the potential for a high return (at increased risk) to another. The diverse range of potential underlying assets and payoff alternatives leads to a huge range of derivatives contracts available to be traded in the market. Derivatives can be based on different types of assets such as commodities, equities (stocks), bonds, interest rates, exchange rates, or indexes (such as a stock market index, consumer price index (CPI) see inflation derivatives or even an index of weather conditions, or other derivatives) The field of finance has undergone a sweeping change in modern times. Innovative tradable financial instrument have been derived from an underlying asset is called a derivative. These are new additions to the world of ever-changing finance. Derivatives have vital role to play in enhancing shareholder value by ensuring access to business risk profile to be modified, thereby providing the potential to improve earning quality that comes in the way of Derivatives market. Because impression is usually given that losses strategies. So after interviewing with different brokers ,investors and dealers, I have tried to give a solution to these complexities. I also find out that what would be the future of derivative market in india on the basis of interviews and observations of brokers, dealers and investors. Regarding future, I have find out that derivatives can indeed be used safely and

successfully provided a sensible control and management strategy is established and executed. inspite of that more awareness should be done and technical expertise knowledge should be more expanded.

DEFINITION Derivative: A financial contract whose value is derived from the performance of assets, interest rates, currency exchange rates, or indexes. Derivative transactions include a wide assortment of financial contracts including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards and various combinations thereof. Derivatives can be used for used for the following purposes: 1. To enhance liquidity and reduce transaction costs in the markets for underlying asset. 2. to control , reduce, eliminate or manage efficiently many types of risks through hedging, arbitraging and acquiring insurance against them. 3. to act as a form of investment and to have wider participation in the securities market.
4. to offer advantages of diversification and enable the investors to

reach the positions of complete market development.

5. to remove the price fluctutions, narrow down the price spread, to

integrate price structure at different points of time and to avoid the shortages in the market.