What are the different types of derivative financial instruments?
Derivative financial tools are among the most complex securities that are traded on financial markets. These securities include options and futures contracts that can trade on major commodity exchanges. Derivative financial instruments are not assigned themselves. Instead, the derivative value is based on further basic safety, such as supply or bond. Derivatives can significantly increase investor's revenues, but can also lead to more serious losses than investing in traditional shares and bonds.
options are among the types of derivative financial instruments. The person who buys an option contract has a large part of control over the fate of this trade. For example, the buyer of call options can buy shares in the company at a predetermined price, dubbed a strike, within a given time frame and before the expiration date. However, an investor of the call is not obliged to buy these shares.
The other side of the call with the possibility of calling is the sales or writer of the options contract. Although toHe can leave the option with options before the expiration date, seller or writer calls, on the options agreement, has no choice but to sell certainty if the investor wants to track the call with the business, although it means that the writer accepts the loss. This is one of the reasons why financial tools for trading with a derivative may be risky.
Another way to buy options is to buy a PUT contract. In this store, the seller has the opportunity to sell basic security at a preset price to the buyer within a given time frame. If this investor prefers sale, the buyer known as the writer PUT must purchase shares for a strike price, although this means buying shares at a higher price than required.
Futures are another type of derivative financial instrument. Basic securities in the futures contract could be commodities such as oil or gas or agricultural products, jaKO is cotton. Futures traders can buy or sell these securities at a preset price in time. Upon purchase, the physical asset may be delivered or the contract may be dealt with instead of cash.
Trading with a derivative financial instrument is often dominated by professional money administrators, including Hedge funds. Hedge funds are slightly regulated investment vehicles that combine more investors' assets and supervise professional portfolio managers who charge st; These money managers use derivatives as a means of increasing the potential income of investment and to mitigate losses because they understand sophisticated investment strategies.