In the stock market. There are different types of derivatives contracts. You can do derivatives trading using the types of derivatives contracts mentioned below:
Futures Contracts: These are standardised agreements to buy or sell an asset (commodity, currency, index, etc.) at a predetermined price on a specified future date. Futures contracts are commonly used by traders to speculate on price movements and also by businesses to hedge against price fluctuations.
Options Contracts: Options give the holder the right, but not the obligation, to buy (call option) or sell (put option) an asset at a predetermined price within a specified time in future. Options are used for various purposes such as hedging, speculation, and generating income.
Swaps: Swaps involve the exchange of cash flows between parties based on a predetermined formula. The most common types of swap contracts are interest rate swaps and currency swaps. Swaps are used to manage interest rate risk, and exchange rate risk, and to customise payment structures.
Forwards Contracts: Similar to futures contracts, forwards are agreements to buy or sell an asset at a future date, but they are not standardised and are usually traded over the counter. Forwards allow for more customization but also have greater counterparty risk.
Interest Rate Derivatives: These derivatives are based on interest rates. They include interest rate swaps, futures, and options. They are used to manage interest rate risk, particularly by financial institutions and corporations.
In derivatives trading, there is no transfer of underlying assets until the date, therefore income loss will not be taxed under the head of capital gains. Therefore, depending upon the fact whether the asset is a trader or an investor, the income from the business profession or income from other sources is determined and the income tax return will be taxed on a net basis.