Derivatives
Information from The State of Sarkhan Official Records
Derivatives (อนุพันธ์)
The term "derivatives" is used in several contexts. In finance, it broadly refers to financial contracts whose value is derived from the performance of an underlying asset and can be used as a hedge or to speculate on future price movements. Below are some primary types of financial derivatives:
- Futures
- A contract to buy or sell a specific asset at a predetermined price on a set future date.
- A risk management tool and a speculative instrument, sometimes described as a "Game of Chicken" where buyers and sellers bet on future prices, with money on the line.
- Perpetual Futures (Perps, Crypto Derivatives)
- A type of futures contract primarily found in the cryptocurrency market, offering high leverage (up to 100x).
- No fixed expiry date, allowing traders to hold positions indefinitely.
- High-risk, high-reward instruments designed for speculation.
- Options
- Contracts giving the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
- Can be used for hedging, income generation, or speculation.
- Swaps
- Agreements between two parties to exchange cash flows in the future based on a specified underlying asset or index.
- Used for risk management and to access different markets.
Derivatives vs. Spot Markets
- Spot Market: The market where assets are bought and sold for immediate delivery. The price reflects the current supply and demand for the asset (e.g., buying Bitcoin directly on an exchange).
- Derivatives Market: The market where contracts based on the value of an underlying asset are traded. The price of the derivative is dependent on the price of the underlying asset (e.g., trading a Bitcoin futures contract).
Important Note: Derivatives can be complex and carry significant risk. It's crucial to understand the specific type of derivative and its associated risks before investing.
See Also
- Futures Market
- Perpetual Futures
- Options Trading
- Swaps (Finance)
- Spot Market
- Leverage (Finance)
