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Derivatives come in handy for protection against price fluctuations. There are two types of derivatives – futures and options. Apart from being a hedge against price fluctuations, they can be traded on exchanges such as commodities, stocks, and currency.

Future and option trading enables those disinterested in the underlying asset to profit from price fluctuations. For example, you are interested in the F&O trading of wheat. You aren’t interested in hoarding tonnes of grains in your garage but, are keen to benefit from price fluctuations. Then, you can buy wheat futures and options without getting the commodity delivered to you. Most participants in the F&O market are speculators, who are not quite interested in the product. This is good as it contributes to the market’s liquidity.


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