Derivatives are financial contracts between two or more parties that derive their value from an underlying asset. The underlying asset can be a stock, bond, currency, commodity, interest rate, or market index. The value of the derivative is bound to change as the value of the underlying asset changes continuously. Derivatives are a way to access specific markets and trade different assets. The most common types of derivatives are futures, options, forwards, and swaps.
Here are some key takeaways about derivatives:
- Derivatives are financial contracts that derive their value from an underlying asset.
- The value of the derivative is bound to change as the value of the underlying asset changes continuously.
- Derivatives can be used to access specific markets and trade different assets.
- The most common types of derivatives are futures, options, forwards, and swaps.
- Derivatives can be bought or sold over the counter or on an exchange.
- Derivatives are usually leveraged instruments, which increases their potential risks and rewards.
- Derivatives are best left to seasoned investors and should be avoided by new or inexperienced investors.
