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PARTICIPANTS IN DERIVATIVES MARKETS


Who can be a member of the Exchange ?
The Bye-laws and Articles of the Association prescribed the criteria for being a member of the Exchange. Any person desirous of being a member of the Exchange may to the Bye-law and Articles of Association and approach the concerned Exchanges for further details in the matter.
Who are the participants in forward/futures markets?
Participants in forward/futures markets are hedgers, speculators, day-traders/ scalpers, and, arbitrageurs.
Who is hedger?
Hedger is a user of the market, who enters into futures contract to manage the risk of adverse price fluctuation in respect of his existing or future asset. Hedgers are those who have an underlying interest in the commodity and are using futures market to insure themselves against adverse price fluctuations. Examples could be stockists, exporters, producers, etc. They require some people who are prepared to accept the country-party position(speculators)
What is arbitrage?
Arbitrage refers to the simultaneous purchase and sale in two markets so that the selling price is higher than the buying price by more than the transaction cost, resulting in risk-less profit. to the arbitrageur.
Who are day-traders?
Day traders take positions in futures or options contracts and liquidate them prior to the close of the same trading day.
Who is a floor-trader?
A floor trader is an Exchange member or employee of a member, who executes trade by being personally present in the trading ring or pit. The floor trader has no place in electronic trading systems.
Who is a speculator?
A trader, who trades or takes position without having exposure in the physical market, with the sole intention of earning profit is a speculator. Speculators are those who may not have an interest in the ready contracts, etc. but see an opportunity of price movement favourable to them. They are prepared to assume the risks, which the hedgers are trying to cover in the futures market. They provide depth and liquidity to the market. They provide a useful economic function and are an integral part of the futures the market. It would not be wrong to say that in absence of speculators the market will not be liquid and may at times collapse.
Who is market maker?
A market maker is a trader, who simultaneously quotes both bid and offer price for a same commodity throughout the trading session. Some of the commodities have liquid market and some have either less liquid or illiquid markets. To bring the liquidity in the market of particular commodity, exchange gives privileges to certain market players who are ímarket makersí. As Market makers normally belong to the class of speculators, they quote both rates for sale and purchase simultaneously.
What kinds of risks do participants face in derivatives markets?
Different kinds of risks faced by participants in derivatives markets are:

a) credit risk
b)market risk
c) liquidity risk
d) legal risk
e) operational risk
What is credit risk?
Credit risk on account of default by counter party: This is very low or almost zeros because the Exchange takes on the responsibility for the performance of contracts
What is market risk?
Market risk is the risk of loss on account of adverse movement of price.
What is liquidity risk?
Liquidity risks is the risk that unwinding of transactions may be difficult, if the market is illiquid
What is Legal risk?
Legal risk is that legal objections might be raised, regulatory framework might disallow some activities.
What is operational risk?
Operational risk is the risk arising out of some operational difficulties, like, failure of electricity or connectivity, due to which it becomes difficult to operate in the market.
 
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