Types of Derivatives
Derivatives are financial instruments whose value derives from an underlying asset, such as stocks, currencies, commodities, indices, among others. They are used for various purposes such as hedging, speculation and arbitrage.
There are different types of derivatives, each with its own characteristics and specific purposes. Let's meet some of them:
Futures
Future contracts are agreements to buy or sell an asset at a future date, at a predetermined price. They are standardized and traded on stock exchanges, enabling the trading of various assets, such as commodities, currencies and indices. Futures are used for both speculation and hedging.
Options
Options are contracts that give the buyer the right, but not the obligation, to buy (call option or "call") or sell (put option or "put") an asset at a future date, at a predetermined price. The buyer pays a premium to the option seller to acquire that right. Options can be used for speculation, hedging or arbitrage strategies.
Swaps
Swaps are contracts in which two parties agree to exchange future cash flows, usually based on interest rates or currencies. They can be used to manage risks, such as currency exposure or changes in interest rates, or for speculation.
Forward contracts
Forward contracts are agreements between two parties to buy or sell an asset at a future date, at a predetermined price. Unlike futures contracts, they are not standardized and are traded directly between the parties involved. Forward contracts are used for hedging and speculation.
Credit derivatives
Credit derivatives are related to the default risk of a debt issuer. They allow investors to buy or sell protection against the default risk of a particular issuer. Credit derivatives are used for risk management and speculation.
These are just a few examples of derivatives available in the financial market. Each type of derivative has its particularities and can be used in different ways by investors. It is important to have a good understanding of these instruments before investing, as they can carry high risks.
