Derivatives for investment purposes are involved in several markets
Involves two markets of production and sales.
The financial derivatives market is divided into four submarkets according to the trading methods of financial derivatives: financial forward market, financial futures market, financial options market and financial swap market.
A derivative product is a financial instrument, generally expressed as an agreement between two entities, the price of which is determined by the price of other underlying products. And there is a corresponding spot asset as the subject matter, and it does not need to be delivered immediately when the transaction is completed, but can be delivered at a future point in time. Typical derivatives include forwards, futures, options, and swaps.
What is the relationship between futures and swaps?
1. Definition
Forward contracts are the basis of futures and swaps, and futures and swaps are derivatives of forward contracts in different aspects. Forward agreements can be used to price futures as well as swaps.
2. Difference
Degree of standardization: Futures are standardized contracts, while swaps are non-standardized contracts.
Trading method: Futures are traded through call auctions on exchanges, while swaps are traded off-site through manual inquiry.
The relationship between the two parties of the contract: futures does not need to settle the counterparty, and swap is to understand the credit and strength of the counterparty.
3. Similarities
Forward contracts are the basis for futures and swaps.
How are financial forwards, financial futures, financial options, and financial swaps different?
A financial forward is a kind of contract, that is, a financial forward contract. Note that it is not a transactional activity.
Forward contracts, swaps, futures, options
In terms of trading methods, financial derivatives fall into forwards, swaps, futures and options. According to the definition issued by the Basel Committee on Banking Supervision in July 1997, derivatives are financial contracts, including forward contracts, swap contracts, futures contracts and option contracts, the value of which depends on the underlying asset or index.
Financial forward refers to the contract signed by both parties to buy or sell a certain financial asset at a certain price in the future at a certain time.
A financial swap refers to a contract in which the two parties to the transaction exchange cash flows with each other in the future according to the rules agreed in advance.
What are the differences between financial forwards, futures, swaps, and options to manage market risks
As far as the type of risk itself is concerned, there is nothing special about the risks involved in derivatives transactions. It has all the basic risks that traditional financial products should have, and it is recognized that there are no other new types of risks. However, due to factors such as leverage, virtuality, futureness, and contingentness, the risk level of derivatives transactions has increased to an unprecedented level compared with traditional financial products. The risks of derivatives trading mainly show the following characteristics: the hugeness of the risk, the suddenness of the risk event, the concentration of the risk, the Interlocking complexity and risks.
What does the IRS mean? Interest rate swaps versus Treasury futures
Interest rate swap (IRS) is a financial contract in which both parties to the transaction agree to exchange the interest amount based on the agreed amount of nominal principal in the same currency within a certain period of time in the future. What is exchanged is only the interest of different characteristics, and there is no exchange of actual principal. Expected annualized interest rate swaps can take many forms. The most common expected annualized interest rate swap is to switch between fixed expected annualized interest rates and floating expected annualized interest rates.