Mondo Visione  6 hrs ago  Comment 
Borsa İstanbul VIOP derivatives contracts was placed among the top 10 in the world, as the most liquid currency and index futures contracts, according to the “WFE/IOMA 2015 Derivatives Market Review” prepared by World Federation of...
Financial Times  Apr 28  Comment 
Brokers will be able to park margin money at the US central bank
The Economic Times  Apr 28  Comment 
The agreement also includes information sharing by both parties to promote each other's understanding of the products listing and the markets functioning.
Mondo Visione  Apr 27  Comment 
Starting from 25 April 2016, TWIME, a new transactional binary protocol for the derivatives market, will be available for Moscow Exchange trading clients.  The TWIME protocol adds more functionality and, coupled with the FAST protocol, offers...
Mondo Visione  Apr 27  Comment 
Yesterday, EEX achieved a total volume of 54,742,532 MWh on its power derivatives market. This represents a new daily record, exceeding the previous high of 30.2 TWh that was achieved on 21 April 2016. In particular, new records in Phelix Futures...
The Economic Times  Apr 26  Comment 
Traders in the derivatives market are betting on select mid-cap stocks such as M&M Financial, Biocon, Bata India, Titan Company and Havells India.
Mondo Visione  Apr 26  Comment 
Singapore Exchange (SGX) is pleased to welcome Hong Kong-based Zhongrong International Futures Company Limited as the newest trading member in its derivatives market. Michael Syn, Head of Derivatives at SGX said, “We are pleased that...
Mondo Visione  Apr 25  Comment 
Hong Kong Exchanges and Clearing Limited (HKEX) today (Monday) announced the successful launch of its Pre-Trade Risk Management (PTRM) system, a system that offers tools to help Participants in its derivatives market meet their needs for pre-trade...
The Times of India  Apr 24  Comment 
Mumbai, April 24 (IANS) The parliament session, along with derivatives' expiry and the US monetary policy review, will dictate the trajectory of the Indian equity markets during the week ahead.
Mondo Visione  Apr 22  Comment 
The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its Europe, Middle East and Africa (EMEA) Credit Derivatives Determinations Committee resolved that a restructuring credit event occurred in respect of Norske...


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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