Derivatives

Derivatives

Derivatives are financial instruments whose value is derived from an underlying asset, such as stocks, currencies, commodities, indices, among others. They are used to hedge against risks, speculation and arbitrage.

Types of Derivatives

There are different types of derivatives, the most common being:

Futures

Futures contracts are agreements between buyers and sellers for the purchase or sale of an asset at a future date, at a predetermined price. They are traded on stock exchanges and can be used for hedging against price changes or for speculation.

Options

Options are contracts that give the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset at a future date, at a predetermined price. They are used for risk hedging, speculation and arbitrage strategies.

Swaps

Swaps are contracts in which two parties agree to exchange future payment flows based on an underlying asset. They may involve exchanging interest rates, currencies, commodities, among others. Swaps are primarily used to manage financial risk and reduce costs.

Functioning of Derivatives

Derivatives are traded on organized markets, such as stock exchanges, or on over-the-counter markets, where trades are made directly between the parties involved. They have specific characteristics, such as maturity, face value, strike price, among others.

Derivatives are marked to market daily, that is, their values ​​are updated based on changes in the underlying asset. This means that investors can make profits or losses even before the contract expires.

Derivative Risks

Despite being widely used financial instruments, derivatives also present risks. The main risks involve the volatility of the underlying asset, the possibility of significant losses, the lack of liquidity at certain times and the possibility of market failures.

It is important for investors to have knowledge and understanding of derivatives before investing in this type of financial instrument. It is recommended to seek information from specialized professionals and study the characteristics and risks involved.

Conclusion

Derivatives are financial instruments that allow the trading of contracts based on underlying assets. They are used for risk protection, speculation and arbitrage. The main types of derivatives are futures, options and swaps. However, it is essential that investors are aware of the risks involved and seek information before investing in this market.

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