What is a derivative contract?

The derivative contract is a contract that derives its value from some basic financial instruments without providing the buyer of the contractual instrument of the tool in question. Investors use derivatives to ensure other investments and speculate on the movement of the prices of underlying tools. The basic tools that can be used in a derivative contract can run from simple stocks to market indices to foreign currencies. Options and futures are two popular types of derivatives that can be traded via the counter between investors or through a centralized stock exchange that monitors trade. This type of investment can be expensive and generally requires an lengthy time obligation of the investor to see profit. A derivative agreement that a huge bank can use an or average investor allows flexibility and rapid profits in a relatively short period of time.

When an investor concludes a derivative contract, he usually buys the opportunity to engage in some basic financial instrument. In mThe foot of cases is not a real contract actually performed by a person holding it. The contracts themselves are value depending on the price performance of the basic tools and often buy and sell them before the completion of their duration.

Options and futures are the most common examples of a derivative contract that is available to the ordinary investor. Both of their values ​​are based on the future price of basic financial security. Futures contracts state that the buyer must purchase basic security in the future at the current market price. On the other hand, the buyer has a right to buy or sell basic securities, but are not obliged to do so.

with the possibilities and futures investors try to guess about the price movement of the underlying tool and also speculate about the timing of this price movement. Other investors can perceive derivatives as a means of securing other investments. The investor takes advantage ofIn principle, the reinsurance strategy buys or sells a derivative contract as a means to balance another investment in its portfolio. Ensuring a good way to minimize the risk of investment; If it is done correctly, it can also obtain profits.