Derivatives and Their Types

Financial instruments whose value is derived from an underlying asset, index, or rate.

Using derivatives to reduce the risk of unfavorable price movements.

Using derivatives to profit from predicted price changes.

Using borrowed funds to increase investment size.

A customized agreement to buy or sell an asset at a specific price on a future date.

Standardized contract to buy/sell an asset at a set price on a specific date, traded on an exchange.

Right (but not obligation) to buy an asset at a specific price (strike price) before a certain date (expiration date).

Right (but not obligation) to sell an asset at a specific price (strike price) before a certain date (expiration date).

Exchange of fixed interest payments for floating interest payments (or vice versa).

Risk that one party in a contract will default on its obligations.

Protecting investments from losses by balancing risk with a second investment.

Betting on price changes in assets to make profit.

Exploiting price differences in different markets for risk-free profit.

The price at which an option buyer/seller can buy or sell an asset.

The upfront cost of buying an option.

The date a derivative contract ends.

An option that has current value.

An option with no current value.

Using little money to control large positions.

Calculating the value difference between current market price and contract price, considering time and interest rates.

Estimating option value using models like Black-Scholes, considering factors like underlying asset price and volatility.

The difference between the current price and the strike price, if an option is in-the-money.

An option's additional value from the time remaining until expiration, due to potential volatility.

Loss potential from changes in the underlying asset's price.

The risk that a party to a derivative contract defaults.

Difficulty buying or selling a derivative asset without significantly affecting its price.

The risk of losing more than the initial investment owing to the amplified gains/losses in derivatives.

The asset whose price determines the value of a derivative contract.

The other party in a derivative contract; responsible for performing contractual obligations.

An intermediary reducing counterparty risk in OTC derivatives by facilitating settlement.

Exchange of fixed and floating interest rate payments.

Contract giving the right, but not the obligation, to buy or sell a currency at a specified price.

Contracts obligating a party to buy or sell a commodity at a future date and price.