Most long-term participants on the stock markets get to view the markets as a measure of the state of the overall economy. When the economic activity produces the desired social and economic gains, then generally the markets would reflect this by having profitable trades being conducted. However, a factor in trading on the stock markets is that this is essentially a zero-sum game. What that means in more simple terms is that if someone were to make some money by stock market betting, then it would necessarily say that another has lost the same sum of money either individually or collectively.
The long trades are those where the person gets to buy security to take advantage of a higher price later on and to sell out at a higher rate than the purchase cost. Another manner of making money is by going short on a security. This is essentially selling an instrument before buying it later on to take advantage of the potential fall in prices.
Conventionally, the first group of market participants is referred to as the bulls and the second category, the bears. All markets are essentially battles between the bulls and bears. So who so ever gets to call right gets to make money most of the time.
Derivatives are financial instruments that get their value from an underlying security or device. What makes the use of derivatives is the leverage that it would offer the participant. So it becomes possible to multiply the earning as compared to the more traditional securities.
In the case of the equity shares and even things like commodities, it is more or less clear to the investor or speculator the kind of risk that he is being exposed to on each trade. But the derivatives are some of the most complex instruments that it is hard to get a proper measure of the actual risk that the investor gets to be exposed to. If someone were to conduct an appropriate study on how the fair value of a derivative instrument is calculated, it will reveal the enormous dark spaces that exist in the very existence of the products.
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