The Hindu Business Line  Sep 29  Comment 
The existing members of commodity derivatives exchanges will be required to make an application for registration with SEBI within three months from September 28
Mondo Visione  Sep 28  Comment 
CME Group, the world's leading and most diverse derivatives marketplace, today announced that the company was named 'Global Exchange of the Year' and 'Global Clearing House of the Year' by GlobalCapital in their Global Derivatives Awards...
The Hindu Business Line  Sep 28  Comment 
Taking charge of regulating the commodities derivatives market, SEBI Chairman U K Sinha today said it would look at allowing foreign portfolio investors and banks in this market in next few months...
Mondo Visione  Sep 28  Comment 
Singapore Exchange (SGX) is pleased to welcome UK-based Marex Financial Limited as the newest trading member in its derivatives market. Chew Sutat, Head of Sales and Clients at SGX said, “We are pleased that Marex Financial has joined our...
Mondo Visione  Sep 25  Comment 
LedgerX announces the appointment of Mark Wetjen to the Board of Directors of Ledger Holdings Inc., the parent company of LedgerX LLC.  LedgerX, an institutional platform for trading and clearing bitcoin options, has recently received temporary...
Mondo Visione  Sep 24  Comment 
The U.S. Commodity Futures Trading Commission (Commission) today issued an order granting Nodal Clear, LLC (Nodal Clear) registration as a derivatives clearing organization (DCO) based on Section 5b of the Commodity Exchange Act. Subject to...
Reuters  Sep 24  Comment 
Monte dei Paschi reached a settlement with Japan's Nomura Holdings to close a loss-making derivative trade, end years of litigation and remove a big financial burden to boost...
Mondo Visione  Sep 23  Comment 
The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its EMEA Credit Derivatives Determinations Committee resolved that a Potential Repudiation/Moratorium has occurred in respect to the Republic of...
Mondo Visione  Sep 22  Comment 
Today Steven Maijoor, Chair of ESMA, delivered the keynote address at the 2015 ISDA Annual Europe Conference in London. His speech focused on the regulation and supervision changing the derivatives market. 2015/1417 ISDA Europe Conference...
Wall Street Journal  Sep 22  Comment 
Carnival said earnings in its latest quarter fell 2% on negative fuel-hedging impacts and slightly lower revenue.


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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