Advantages Of Derivatives?
Advantages of derivatives are as follows;
Trading for hedging purposes: The transactions conducted by investors, who already have a position in spot market and want to avoid price risk, in order to fix the future price.
Trading for arbitrage purposes: The transactions in order to benefit from price differences by trading the same futures contracts in different markets; such as the price difference between spot market and futures market.
The opportunity of trading for risk management purposes : The investors, who have position in spot markets, capital market instruments or in commodity markets, may conduct trades in derivatives market in order to avoid price risk through fixing future price. To clarify, to avoid the unexpected changes in spot markets, in futures markets, the investors take reverse positions of their positions in spot markets. In addition to this, following correct strategies in options contracts is also an alternative for protection.
Opportunity for investing in commodity markets : Benefiting from the price fluctuations in commodity markets is difficult and costly. While, investors can easily achieve this by trading futures contracts, without engaging in physical delivery. In BIST Derivatives market, collateralization is applied on portfolio basis, through the utilization of SPAN algorithm by Settlement and Custody Bank. Span algorithm calculates the collateral amount on portfolio basis by considering the maximum scan risk, intra-commodity spread charge risk, risk value of the delivery month and inter-commodity spread credit risk included in the scenarios builded based on changes in various price and volatility levels. Thus, the amount of collateral to be charged from a member is guessed in a way, which enables securing the clearing process. The parameter file, which the SPAN algorithm is based on is posted daily by the Settlement and Custody Bank.
Initial Margin : It is the minimum amount of collateral, which should be deposited in clearing center in order to take a position in a contract, that is being traded in derivatives market.
Maintenance Margin: It is the balance a trader must maintain in his or her account as the balance changes due to price fluctuations. If the balance in the trader’s account drops below this margin, within the frame of margin call, the trader is required to deposit enough funds or securities to bring the account back up to the initial margin requirement.
Emergency margin : BIST may request emergency margin in addition to the initial margin within the context of the issues identified in BIST regulations.