Mondo Visione  Oct 26  Comment 
London Derivatives Exchange (LDX) Group today announced its rebranding, following separation from GMEX Technologies.  Incorporating London Derivatives Exchange Limited and Global Derivatives Indices Limited (GDI), the new structure will...
Mondo Visione  Oct 24  Comment 
The Autorité des marchés financiers (“AMF”) has announced the members of its Derivatives Advisory Committee. The specific mandate of the Committee is to examine and discuss statutory and regulatory proposals pertaining to derivatives...
Mondo Visione  Oct 21  Comment 
Hong Kong Exchanges and Clearing Limited (HKEX) announced that the morning trading in its securities market, including Shanghai-Hong Kong Stock Connect trading, and derivatives market has been delayed due to the issuance of Typhoon Signal No....
Mondo Visione  Oct 19  Comment 
Duco, the global fintech provider of data control services, announced further growth in the listed derivatives space today at the 32nd FIA Expo in Chicago. Duco has signed two leading, global FCMs to Duco Cube, its award-winning hosted...
Financial Times  Oct 19  Comment 
New York could be ‘big winner’ from EU-UK swaps tussle, says Morgan Stanley chief
The Hindu Business Line  Oct 18  Comment 
After establishing itself in benzene-based derivatives for over three decades, Aarti Industries diversified into toluene-based derivatives in this financial year by setting up 30,000 tonne per anum g...
Mondo Visione  Oct 17  Comment 
The issue of clearing access for smaller derivatives users has been raised as a concern in the US and Europe. To further examine these issues, ISDA conducted an analysis of publicly available data on clearing. The Association also surveyed and...
Mondo Visione  Oct 17  Comment 
From 17 October options, forwards and futures will be listed on Aker BP as the underlying share. Aker BP is one of the most traded securities on Oslo Børs, and the possibility to trade derivatives on this share has been in demand from the...
Mondo Visione  Oct 14  Comment 
Little change reported on the liquidity and functioning of markets Less favourable credit terms offered to hedge funds and banks Less favourable credit terms for non-centrally cleared interest rate derivatives Credit terms offered to...


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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