Derivatives Trading

A financial derivative is a financial instrument that is traded at an exchange. It derives its value from an underlying asset. The underlying asset could be stocks, currencies, commodities, indices, and interest rates. Financial derivatives were initially designed to help investors reduce exchange rate risks. Still, their utility has grown to help investors mitigate various risks and access more market opportunities. Derivatives products over the years have become attractive to investors because they provide a chance to trade on the price changes of underlying assets without becoming owners of these underlying.

LEARNING OUTCOMES

At the end of the course, you will be able to understand the following:

• What is a derivative instrument?
• Types of Financial Derivatives.
• Use of Financial Derivatives.
• Basics of Derivatives Trading.

What are Derivatives?

Derivatives are financial instruments whose values are derived from the prices of underlying assets such as equity securities, fixed-income securities, foreign currencies, or commodities. A derivative could also be defined as a kind of contract between two parties to exchange payments linked to the prices of underlying assets.