Derivatives

Types of Derivatives

1

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.

2

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.

3

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%. 

4

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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