Derivate

What are derivatives?

A derivative, also referred to as a mutual contract, is a financial product whose price and performance depend on a base value. These capital market products, created specifically for traders and other institutions that are deeply involved in stock exchange trading, relate to financial instruments such as securities, foreign exchange, futures, CFDs, and other financial trading items such as commodities and precious metals. Derivatives have no intrinsic value of their own since their origin is another product (base value). There are now more than a million derivatives that are used for both hedging and speculation. Derivatives thus can be used to speculate on price movements without having to buy the underlying asset directly. The basic forms of derivatives include unconditional forward transactions and conditional forward transactions.

Unconditional forward transactions

Unconditional forward transactions obligate both parties to honour the contract.

Contingent forward transactions

The buyer of the underlying asset does not have to honour the contract in contingent forward transactions, but they may do so.