The Hindu Business Line  Jul 21  Comment 
The Bombay Stock Exchange (BSE) has said that the lot size for derivatives contracts in the equity derivatives segment would be fixed in such a manner that the contract value of the derivativ...
Mondo Visione  Jul 21  Comment 
Singapore Exchange (SGX) is pleased to welcome Hong Kong-based Bright Smart Futures and Commodities Company Limited (Bright Smart) to its derivatives market as a trading member.  Chew Sutat, Head of Sales and Clients at SGX said, “We are...
Mondo Visione  Jul 20  Comment 
Five years on from the Dodd-Frank Act being signed into law, significant progress has been made in implementing derivatives market reforms, but a number of outstanding issues need to be resolved, according to a paper published today by the...
The Economic Times  Jul 20  Comment 
For index derivatives, the lot size -- in units of underlying -- would be fixed as a multiple of 5, provided the lot size is not less than 10.
The Economic Times  Jul 14  Comment 
The trader will purchase or sell a variety of different futures and options at the same time, which otherwise would need separate orders.
Reuters  Jul 14  Comment 
The suspension of hundreds of mainland China stocks during a market plunge from mid-June could lead to disputes between banks and their clients over the valuation of billions of dollars of equity derivatives.
The Economic Times  Jul 13  Comment 
India has raised the minimum contract size for equity derivatives to 500,000 rupees ($7,870) from 200,000 rupees earlier, the market regulator said in a circular on Monday.
Forbes  Jul 7  Comment 
“Relax! This time, if we fail, we won’t drag the rest of capitalism down with us.” That seems to be the message from America’s financial powerhouses after a read through of their updated living wills, delivered to the Federal Reserve and...
Channel News Asia  Jul 6  Comment 
The trading value for securities last month jumped 20 per cent from a year ago, while the derivatives market saw a 152 per cent surge in trading volume compared to the previous year. 
Channel News Asia  Jul 1  Comment 
Under proposed regulations, banks that book more than S$20 billion worth of derivatives contracts must clear through domestic or foreign Central Counterparties that are regulated by the Monetary Authority of Singapore.


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.

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki