Frequently Asked Questions (FAQs) About Derivatives Trading

[AJAY KAPOOR]

Derivatives trading refers to the buying and selling of financial contracts that derive their value from an underlying asset. Common examples of derivatives include futures, options, and swaps. Derivatives can be used for a variety of purposes, including hedging risk, generating income, and speculative trading.

What are the Four Main Types of Derivatives?

The four main types of derivatives are swaps, futures, forwards and options.

• Swaps — A swap is a contract in which two parties agree to exchange cash or securities at fixed rates, on a predetermined schedule.
• Futures — A futures contract allows the buyer to buy or sell a security at a future date, at an agreed-upon price.
• Forwards — A forward contract is an agreement between two parties to buy or sell a security at a future date, at an agreed-upon price.
• Options — An option gives the buyer the right, but not the obligation, to purchase or sell a security at a set price within a certain period of time.

What are the Difference Between Derivatives and Shares?

Derivatives are financial contracts that derive their value from an underlying asset. Common examples of derivatives include futures, options, and swaps. Shares, on the other hand, represent ownership in a company. Derivatives can be used for a variety of purposes, including hedging risk, generating income, and speculative trading.

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