Mondo Visione  Jun 24  Comment 
We are pleased to announce listing new products and revisions to the trading rule at the Next Generation Derivatives Trading System (Next J-GATE). JPX’s vision is to become “The most preferred exchange in the Asian region”, and one of the...
Mondo Visione  Jun 23  Comment 
NZX is pleased to announce that OM Financial Limited (OMF) has been accredited as a Trading & Advising Participant and also a General Clearing Participant for the NZX Derivatives Market. Since 2010, OMF has been an NZX Derivatives Advising...
Mondo Visione  Jun 22  Comment 
The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its EMEA Credit Derivatives Determinations Committee resolved that a restructuring credit event occurred in respect of The State Export-Import Bank of...
Mondo Visione  Jun 18  Comment 
Rival Systems, LLC (“Rival”) is a newly formed trading software company focused on empowering professional traders with the technology and resources required to compete in today’s markets. Rival will officially launch its low-latency...  Jun 16  Comment 
Former trader accused of interest-rate rigging also allegedly threatened brokers in effort to aid his trading, court hears Tom Hayes, a former trader on trial for alleged interest-rate rigging, described the broking market he worked in as the...
Mondo Visione  Jun 15  Comment 
Time of resumption of trading after the main clearing session Derivatives Market will be at  20.00 pm.
Forbes  Jun 11  Comment 
In a unanimous decision, the court said medical marijuana patients should not be limited to smoking the plant.
Euromoney  Jun 10  Comment 
A review of EMIR reporting is under way as the industry lobbies regulators to move to single-sided reporting for OTC derivatives and remove the reporting requirement for exchange-traded derivatives. What’s more, cross-border harmonization of...
Mondo Visione  Jun 9  Comment 
At 11:09 am MSK on 09 June some member firms may have experienced a 30-second disconnection from the Moscow Exchange Derivatives Market trading system. In line with the Exchange"s trading procedures, orders placed by members with the "Cancel on...


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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