What is Derivatives Market? - PowerPoint PPT Presentation

About This Presentation
Title:

What is Derivatives Market?

Description:

In the world of finance derivative is a type of financial product whose value is linked to the underlying assets. Underlying assets meaning in a derivative or warrant is that it is a type of security, property, or other assets that influences the value of the derivative or warrant. This presentation will give you a clear idea about derivative markets(). – PowerPoint PPT presentation

Number of Views:126
Slides: 7
Provided by: anvitsingh
Category: Other

less

Transcript and Presenter's Notes

Title: What is Derivatives Market?


1
What are derivatives?
2
Introduction
  • In the world of finance derivative is a type of
    financial product whose value is linked to the
    underlying assets. Underlying assets meaning in a
    derivative or warrant is that it is a type of
    security, property, or other assets that
    influences the value of the derivative or
    warrant.
  • For example, in an option giving one the right to
    buy stock in Johnson and Johnson, the underlying
    asset is the stock in Johnson and Johnson. The
    derivative is a bond between two parties and its
    value is derived from the fluctuations in the
    underlying assets.
  • This presentation will give you a better idea of
    what are derivatives.

3
Types of derivatives
  • Forward Contracts This type of derivative is a
    custom-made contract between two parties in which
    the settlement between the parties takes place in
    the future on any decided date. The price is
    decided beforehand and at the same price, the
    deal is made in the future
  • Future Contracts Futures contract is quite
    self-explanatory and similar to forward contracts
    it is a deal made to buy or sell an underlying
    asset at a specified price on a future date.
  • Options Contracts The features of options
    contracts are quite dissimilar as compared to the
    above two types of derivatives. In the other
    types of contracts, there is no mandate to
    discharge the contract on the specified or
    decided date. In this type, the parties can opt
    to buy or sell the asset but are not obliged to
    do so
  • Swap Contracts Out of all the above various
    types of derivatives contracts mentioned above,
    the swap contracts are the most complicated.
    These contracts are made between the two parties
    privately. The parties decide a predetermined
    formula and exchange their cash flow according to
    the formula in the future.

4
Who should trade in derivatives?
  • Hedgers The investors who are known to hedge a
    risk are called as hedgers. So the process of
    hedging is nothing but minimizing risk. Hedging
    involves tackling different parameters resultant
    from current market conditions which impact the
    risk factor.
  • Speculators Speculators are the investors who
    scrutinize the price factor and after proper
    evaluation, they invest when the price factor is
    in favor of maximum gains.
  • Arbitrageurs Arbitrageurs function a bit
    differently and in a swift manner and has the
    proficiencies of making instant decisions to
    generate better gains with minimal risk scenario.
    They are the investors who work towards improving
    liquidity in the market by making most of the
    arbitrage opportunities available for a specific
    period

5
Conclusion
  • To conclude, we have understood the types of
    derivatives with examples and how they are the
    best hedging instruments. With these instruments,
    traders can predict the future after a better
    analysis of price movements eventually giving
    good profits.
  • You should learn about derivatives even more to
    get a hold on the concept and become an active
    trader in the derivative markets.

6
THANK YOU
Write a Comment
User Comments (0)
About PowerShow.com