Derivatives are financial instrumentWhat are the financial instruments? A financial instrument... More, whose is calculated from the values/prices of the underlying assets.that are based on one or more underlying . This means that not the underlying asset is traded, but a
The most common types of derivatives are:
The most common underlying assets include:
Derivatives are broadly categorized by aspects such as:
- … the relationship between the underlying asset and the derivativeDerivatives are financial instruments that are based on o... More (such as forward, option or swap).
- … the type of underlying asset (such as equityWhat is equity? In accounting and finance, equity is the r... More derivatives, foreign exchange derivatives, interest rateWhat are interest rates in trading? When one party lends mo... More derivatives, commodity derivatives, or credit derivatives).
- … the marketWhat are value stocks? A value company is a company that app... More in which they trade (such as -traded or ).
Derivatives can be used for speculation (“bets”) or to(“insurance”).
For example, a speculator may use them to exert priceWhat are value stocks? A value company is a company that app... More to fall significantly – but exposing himself to potentially unlimited losses. That is also why proper risk and money managementMoney management refers to one of the most important concep... More is crucial especially when trading certain derivatives:, expecting a stock
In forex trading, companies often buy currencyWhat is currency? Currencies are the generally accepted medi... More forwards in orderWhat is a trade order? In trading, an order can be defined... More to limit losses due to fluctuations in the of two currencies. This is also an example for risks that companies sell to the markets – one of the opportunities why traders can earn moneyMoney is a generally accepted medium of exchange to buy and... More at trading.
Third parties can use publicly available derivative prices as educated predictions of uncertain future outcomes. For example, the likelihood that a corporation or a country will default on its debts.