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future & optin trading speculative or non speculatvie

DIPAL SHAH (PROPRIETOR) (61 Points)

29 July 2010

sec. 43 (5) have an explanation (d) which says that elegigble transaction in derivatives carried out through recognised stock exchange is not deemed to be speculative transaction.

i want to know whether a person having transaction in futures & options on recognised stock exchange will have speculative or non speculative income

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Member (Management) (325 Points)
Replied 29 July 2010

Derivative is a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives are contracts and can be used as an underlying asset. There are even derivatives based on weather data, such as the amount of rain or the number of sunny days in a particular region.

Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes.

I guess you can say that futures and options are also covered by "derivatives" and so covered by Section 43(5)(d) and therefore do not qualify as "speculation".