The derivatives market is one that continues to grow, offering investors an increasingly wide range of options. However, the main types of derivatives include futures, forwards, swaps, and options.
Futures and forwards are contracts for the future purchase/delivery of an asset at an agreed price. Traders hope to profit by purchasing assets at a cheaper price today than they expect them to be in the future.
Swaps are contracts that allow an investor to swap their position with another position. For instance, an investor may receive a return of 1.0% interest but use a swap derivative to change it to 1.5%.
Options are contracts that give an investor the option to buy or sell an asset in the future, at a pre-agreed price. If the price is no longer attractive in the future, they have the choice to not buy or sell an asset.
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