Knowra Derivatives market Derivatives market A financial market where participants trade contracts whose value derives from an underlying asset, rate, index, or event. It includes exchange-traded and over-the-counter markets.
Derivative (finance) : A financial contract whose value depends on an underlying asset, rate, index, or event. The traded contract is the market’s basic unit.
Hedging : A strategy that reduces exposure to potential losses by taking an offsetting position. Businesses and investors use derivatives to offset risks in underlying prices or rates.
Exchange-traded derivative : A standardized derivative traded on an exchange, typically with a clearing house between counterparties. Exchange trading contrasts with bilateral contracts in standardization and public price visibility.
Leverage (finance) : The use of borrowed funds or financial contracts to magnify exposure relative to invested capital. Derivatives can generate large market exposures from comparatively small upfront payments.
Underlying (finance) : An asset, rate, index, or event on which a derivative’s value or payments depend. The underlying determines the exposure that a derivative contract transfers.
Futures contract : A standardized agreement to buy or sell an asset at a set price on a future date. Exchange-traded futures illustrate standardized contracts and central clearing.
Speculation : Taking financial risk in pursuit of profit from anticipated changes in market prices. Derivatives can create leveraged exposure to price movements without owning the underlying asset.
Forward contract : A private agreement to buy or sell an asset later at a price agreed in advance. Forwards are commonly customized and bilateral, unlike exchange-standardized futures.
Counterparty risk : The risk that the other party to a financial contract will fail to meet its obligations. Bilateral derivative positions can transmit losses when a counterparty defaults.
Option (finance) : A contract granting its holder the right, but not the obligation, to buy or sell an asset under specified terms. Options are a major contract family traded in derivatives markets.
Show all 27