Demat Account: What is futures trading and how does it work? MintGenie explains

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Derivatives represent the most actively traded segment in the Indian stock market, boasting significant volume when compared to the cash segment. This heightened trading activity can be attributed to several factors, including the allure of derivative trading among young investors in India.

Derivatives trading has garnered considerable attention from young investors due to its distinct advantages. Unlike the cash segment, derivative trading requires relatively less capital investment while offering exposure to controlling a larger quantity of volume. 

Furthermore, derivative trading provides opportunities for leveraging investments, enabling investors to amplify their potential returns through the strategic use of borrowed funds. 

Derivatives were initially introduced to protect farmers from the risk of price fluctuations in agricultural products. Over time, the concept of derivatives expanded to include various asset classes such as stocks (equity derivatives), precious metals (non-agricultural commodities), currencies (currency derivatives), and interest rates (interest rate derivatives).

Also Read: Can you link multiple trading accounts to your demat account? MintGenie answers

In this article, we will explore how to use a demat account for futures trading, an essential product in the realm of derivatives.

Futures in derivatives are financial contracts that obligate the buyer to purchase (or the seller to sell) an asset, such as a commodity or a financial instrument, at a predetermined price and specified future date. 

These contracts are standardised and traded on organised exchanges such as NSE and BSE. The buyer of a futures contract is agreeing to buy the underlying asset at a specified price on a specified future