What is Exchange Traded Derivatives?
- 24th July 2025
- 10:15:00 AM
- 5 min read
Curious about how today’s financial markets work? Then, you cannot overlook exchange-traded derivatives (ETDs) and over-the-counter (OTC) derivatives. ETDs are standardised contracts traded on regulated exchanges under SEBI’s supervision, while OTCs are privately negotiated deals. In this blog, we dive deep into exchange-traded derivatives and explore their various types.
What are Exchange-Traded Derivatives?
Exchange-traded derivatives are a common derivative type that you can trade on a public exchange, such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Unlike OTCs, ETD is more transparent and carries fewer risks. In India, the SEBI regulates the ETDs.
These financial contracts primarily include futures and options, and their value is derived from underlying assets such as stocks, indices, commodities, currencies, or interest rates.
5 Key Features of Exchange-Traded Derivatives
Exchange-traded derivatives have become extremely popular in India because of their features. According to the SEBI, almost 99.3% of the futures and options traders invested in options in FY24. Below are some essential features of ETDs:
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Standardisation
The standardisation sets ETDs apart from derivative categories. Every exchange-traded derivative contract includes a predetermined expiration date, settlement process, lot size, and other regulations. This helps the exchanges offer specialised contracts to buyers and sellers.
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Reduced Risk of Default
Since you can trade these derivatives through an intermediary, the possibility of risk of default is very less. Both the buyer and seller have an obligation to the intermediary.
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Easy Offsetting Procedure
You can purchase exchange-traded derivatives very easily because you can offset any previous contracts. The exchange makes you trade with someone who desires the opposite of you. Therefore, you do not have to wait to search for a buyer yourself.
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Liquidity
Exchange-traded contracts also offer the flexibility to purchase and sell these contracts very quickly. Since the number of buyers and sellers in the market is huge, you can take a position or get out of it without waiting for a long time.
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Regulated Exchange
ETDs are safe to invest in since SEBI and exchanges regulate them. These derivatives also prevent the big players from getting complete control over the commodity.
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What are the Different Types of Exchange-Traded Derivatives?
Since you have known the exchange-traded derivatives meaning and their features, let us have a look at the different types of ETDs:
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Stock ETDs
Stock exchange-traded derivatives like stock forwards and stock options help you take highly leveraged positions on the price movements. The NSE and the BSE deal in stock derivatives in India. For instance, you can trade futures and options on stocks of Adani Enterprises Limited, Reliance Industries Limited, or Tata Consultancy Services.
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Index ETDs
These types of ETDs invest in major stock indices like NIFTY 50 and BANK NIFTY. In other words, index ETDs are a group of stock-related derivatives. However, you will not get any physical delivery while investing in index ETDs.
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Commodities ETDs
Commodity exchange-traded derivatives are commodity-based contracts, such as silver, gold, crude oil, and other commodities. You can trade these contracts on the Multi Commodity Exchange (MCX) in India.
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Real Estate ETDs
You can also trade in real estate ETDs without owning any corporate buildings or facilities. The primary advantage of it is that you can hedge against the property price changes without owning it.
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Currency ETDs
Currency derivatives allow you to anticipate the future price movements of currency pairs. Some of the common currency pairs you can trade in the NSE are INR/EUR, INR/USD, INR/GBP, and INR/JNY.
Final Thoughts
Understanding what exchange-traded derivatives are and their features helps you earn a profit and also manage risks. These derivative contracts are simple and easy to trade. However, you should be cautious while investing in derivatives due to their higher risks.
Open a trading account with PL Capital with zero annual maintenance fees and start investing in ETDs like futures and options. PL Capital offers a variety of features like live market updates and quick order execution.
Frequently Asked Questions
1. What do you mean by an exchange-traded market?
An exchange-traded market is a regulated market where an intermediary is the organiser.
2. How does an ETD differ from OTC?
The difference between an ETD and an OTC is their regulation. While the ETDs are settled through clearing houses, the OTCs are negotiated privately and involve risks from counterparties.
3. What are exchange-traded transactions?
Exchange-traded transactions are buying and selling standardised contracts on a regulated exchange.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
