Derivative instruments are financial contracts whose value is derived from an underlying asset. They are used to hedge risk or speculate on the future price of an asset.
Derivative instruments are financial contracts whose value is derived from the value of an underlying asset. These instruments are used to hedge against risk, speculate on the future direction of an asset, or to generate additional income. Derivatives can be used to manage a wide range of risks, including interest rate risk, currency risk, commodity price risk, and equity price risk.
Derivatives are typically traded over-the-counter (OTC) or on an exchange. OTC derivatives are contracts that are negotiated directly between two parties, while exchange-traded derivatives are standardized contracts that are traded on an exchange. The most common types of derivatives are futures, options, swaps, and forwards.
Futures are contracts that obligate the buyer to purchase an asset at a predetermined price on a specified date in the future. Options are contracts that give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price on a specified date in the future. Swaps are agreements between two parties to exchange cash flows based on the performance of an underlying asset. Forwards are contracts that obligate the buyer to purchase an asset at a predetermined price on a specified date in the future.
Derivatives can be used to hedge against risk, speculate on the future direction of an asset, or to generate additional income. They can also be used to manage a wide range of risks, including interest rate risk, currency risk, commodity price risk, and equity price risk. Derivatives are typically traded over-the-counter (OTC) or on an exchange. The most common types of derivatives are futures, options, swaps, and forwards.