Derivatives are financial contracts whose value/price is dependent on the behavior of the price of one or more basic underlying assets (simply known as underlying). These contracts are legally binding agreements, made on the trading screen of stock exchanges, to buy or sell an asset in future. The asset can be a share, index, interest rate, bond, rupee/dollar exchange rate, sugar, crude oil, soyabean , cotton, coffee etc.

The Securities and Exchange Board of India (SEBI) allowed trading in equities-based derivatives on stock exchanges in June 2000. Accordingly the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) introduced trading in futures on June 9, 2000 and June 12, 2000 respectively. Currently futures and options turnover on the NSE is Rs7,000-8,000 crore approximately. In India stock index options were introduced from July 2, 2001.

Futures are exchange-traded contracts to buy or sell an asset in future at a price agreed upon today. The asset can be a share, index, interest, bond, rupee-dollar exchange rate, sugar, crude oil, soya bean, cotton, coffee etc.

Options are contracts that give the buyers the right (but not the obligation) to buy or sell a specified quantity of certain underlying assets at a specified price on or before a specified date. On the other hand, the seller is under obligation to perform the contract (buy or sell). The underlying asset can be a share, index, interest rate, bond, rupee-dollar exchange rate, sugar, crude oil, soya bean, cotton, coffee etc.