Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index or reference rate ), in a contractual manner. The underlying asset can be equity , forex, commodity or any other asset.
Derivative can be defined through many ways like, Any security or commodity derived from a debt instrument , share, loan, etc. whether it is secured or not, risk instrument or contract for differences or any other form of security is also can be treated as derivative or a A contract which derives its value from the prices, or index of prices, of underlying securities is also a derivative.
TYPES OF DERIVATIVES
Forwards: A forward contract is customized contract between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price.
Futures: An agreement between two parties to buy or sell an asset at a certain time in the future at a certain price . Futures contacts are special types of forward contracts in the contracts in the sense that the former are standardized exchange-traded contracts.
Options: Options are of two types calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not obligation to sell a given quantity of the underlying asset at a given price on or before a given date.
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