Mondo Visione  5 hrs ago  Comment 
The Ontario Securities Commission (OSC) today published amendments to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (the TR Rule) and its companion policy for a 90-day comment period. The proposed amendments would...
Euromoney  Nov 4  Comment 
Companies that use over-the-counter (OTC) derivatives to manage foreign-currency earnings exchange-rate risk will have taken note of recent pro-active developments on market reform in Asia and Africa. The next step – mandatory clearing in Asia...
Mondo Visione  Nov 4  Comment 
TradingScreen Inc., the leading independent provider of liquidity, trading and investment technology via SaaS, announces the launch of the Market Surveillance Tool, a component of the TradeAnalytics family of products, to monitor a broad range of...
The Economic Times  Nov 1  Comment 
The National Stock Exchange has extended discounts of up to 45 per cent in transaction charges for trading on its equity derivatives platform.
Euromoney  Oct 29  Comment 
Bitcoin is riding high after a recent European Court of Justice ruling that users in Europe are not liable to pay value-added tax when trading the cryptocurrency. But regulators worldwide are divided on whether it is a commodity or a currency and...
Channel News Asia  Oct 28  Comment 
Trading on the derivatives market was temporarily suspended at 10pm on Tuesday (Oct 27) after some trading participants were unable to connect to the market due to "intermittent tech failure", SGX said. 
Mondo Visione  Oct 26  Comment 
Euronext today launched AtomX, a flexible service that offers the efficiency and security of the regulated market and central clearing to bilaterally negotiated trades. Through AtomX investors are now able to customise and trade options and...
Yahoo  Oct 26  Comment 
Standard Chartered said on Monday it plans to exit from its equity derivatives and convertible bonds businesses, following a step earlier this year to close the bulk of its global equities operations. ...
The Economic Times  Oct 24  Comment 
The market grapevine has it that they had to part with a substantial chunk of their holdings in Century Textiles and Industries last month.


Derivatives are investment vehicles whose price is dependent on an underlying asset. The most common form of derivatives include stock options, futures & swaps. Options are contracts that give the holder the right but not the obligation to buy or sell a specific security at a pre-determined price on a pre-determined date. The two kinds of options are call and put options. A call holder has the right but not the obligation to “call” stock away from the call writer. So as the price of the underlying security, in this case a stock moves up (or down) the call option becomes worth more (or less). Since derivatives are essentially a contract with an associated value there are many forms of derivatives. Some companies use derivatives to hedge against natural resource price swings or fluctuations in weather that may affect yields.

Derivatives are used by investors to:

  • Provide leverage (or gearing), such that a small movement in the underlying value can cause a large difference in the value of the derivative
  • Speculate and make a profit if the value of the underlying asset moves the way they expect (e.g., moves in a given direction, stays in or out of a specified range, reaches a certain level)
  • Hedge or mitigate risk in the underlying, by entering into a derivative contract whose value moves in the opposite direction to their underlying position and cancels part or all of it out
  • Obtain exposure to the underlying where it is not possible to trade in the underlying (e.g., weather derivatives)
  • create option ability where the value of the derivative is linked to a specific condition or event (e.g. the underlying reaching a specific price level)

Example: A lease option to buy a house. The lease contract has terms that give you the right to buy the house at a specific price any time you want (until the lease contract expires). Suppose the terms stated that you could buy the house anytime within the first year of leasing from the owner for 100,000. If the price of the house (local real estate boom) increased to 150,000 you could buy the house for 100,000 and then sell it for 150,000 for a profit of 50,000. If the price of house price dropped (perhaps crime increase) you would have no incentive to exercise your option to buy, so you let that contract expire (worthless) and you do not buy the house. As illustrated here, the contract derives its value NOT from the paper on which it is written, but from the actual market price of another object (the house in this case). This is the basic premise for instruments of specualation known as derivatives.

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