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Education

Learn about the Derivatives market. You can find useful information such as the basics of Derivatives, the products available, futures contracts and more.

What Are Derivatives?

Derivatives Basics

What Are Derivatives?

Derivatives are financial instruments used to manage one's exposure to today's volatile markets. A derivative product's value depends upon and is derived from an underlying instrument, such as commodities, interest rates, indices or stocks.

In other words, a derivative is a financial contract with a value linked to the expected future price movements of an underlying asset it is linked. It is used as a tool for hedging, speculating and arbitraging.

Futures and options are essentially elementary derivative products mostly traded on exchanges. A futures contract is an agreement between two parties to buy or sell the underlying instrument at a specific time in the future at a specific price determined today.

An option however, provides the holder/buyer the right, but not the obligation, to purchase or sell a certain quantity of the underlying instrument at a stipulated price within a specific time period by paying a premium.