Overview of derivatives
A derivative is an instrument that derives its value from the value of an underlying asset. Derivatives are traded in two types : - Exchange-traded and Over the counter Exchange-traded derivatives have the predetermined specifications, including the tenure/term of the instrument, the size of the contract, and prices are available to the public. Over the Counter are created to meet the unique and non-standard requirements of two parts The derivatives are also can be categorized based on the markets, where they trade, based on the underlying asset and based on the product features, etc. Forward contract: - Forward contract is an agreement between the buyer and the seller, in which the buyer has the right and obligation to buy a specified asset on a specified date, and at the specified rate (OTC) Seller is under obligation to perform the contract. Future contract: - These contracts will be representing the obligation on the part of the buyer and seller, but the terms and con