Experts seek derivatives market for risk management | The Daily Star
12:00 AM, October 09, 2012 / LAST MODIFIED: 12:00 AM, October 09, 2012

Experts seek derivatives market for risk management

The high risks associated with investments in the country's stockmarket can be curtailed by introducing a derivatives market, experts said.
A derivative, essentially, is a financial contract between two parties whose value is based on, or “derived” from, the performance of underlying assets such as stocks, bonds, commodities, interest rates, exchange rates.
“By locking in asset prices, derivative products minimise the impact of price fluctuations on the profitability and cash flow situation of risk-averse investors, and also serve as instruments for risk management,” said Al Maruf Khan, president of Chittagong Stock Exchange (CSE).
Depending upon the strategy they employ, investors can profit from both the rising and falling markets, Khan said.
“With the introduction of derivatives, I believe that the underlying liquidity of our equity market will significantly increase and volatility will be reduced,” he said. “It will create a much healthier and transparent market.”
CSE is working to develop an appropriate regulatory framework to support the derivatives market in Bangladesh.
“The initial outlay for derivatives is far less than that required for direct investment in the underlying security. Derivatives enable investors to benefit from a change in the price of the underlying without having to pay its full price,” Khan added.
Akter Hossain Sannamat, a market analyst, said the derivatives market is important for risk diversification.
“A derivatives market increases the liquidity flow and creates alternative investment opportunity in bonds, currencies and interest rates,” said Sannamat, while urging the government to introduce a derivatives market in Bangladesh.

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