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Valuable than derivatives?

What is a derivative? Why do traders trading on Forex? It turns out that D. relevant for currency traders. Indeed, this may include Options and Futures. Let's look at the term in more detail.

Origin of the term D.

The term "derivative" is borrowed from the French and German languages and translates as "derivative" or "secondary security." The roots of the word go back to the Latin "derivare", the literal translation - take (water) from the words de (formed from anything produced) and rivus (stream flow).

In modern financial interpreting the term "derivative" is meant a derivative of the security paper, a valuable recycled paper, the security level of the second or second-order derivative. In fact, a derivative called a security which is issued on an already existing financial asset, i.e. "Paper on paper". Hence, a derivative is a financial instrument, prices and conditions of which are derived from other relevant parameters financial instrument, which in this case is the base.

Features and types of derivatives

D. characterized by several features: urgency, contract and profit orientation. Urgency implies expiration D. after a certain time. Contractual says that D. is the result of futures contracts (agreements). Finally, the purpose of buying is not the acquisition of D. certain asset and profit from the fact that the cost of the asset changes.

Also worth noting that the number of AD may not coincide with the amount of the underlying asset.

Among the most famous D. isolated futures, options and swaps.

Interestingly, the market D., in particular credit default swaps, namely the unregulated development of this market is one of the main causes of the global economic crisis (2007-10.). Therefore, in one of the provisions of the construction of a new global financial architecture is supposed renegotiation issue D., and trade them.


Futures (English Future - the future) can be interpreted as a guaranteed future, a future that is defined. In this case, thanks to the certainty and obtain warranty follow some pre-known requirements of both sides, it is a kind of standard. Futures markets - stock always, forward - OTC. Therefore, futures markets are more predictable and egoistic.


From the English. option - option; Lat. option or optio - discretion, to free choice. An option is a derivative security - the so-called option contract. This implies the right, but not the obligation, to buy or sell a specified amount of some asset (e.g., currency or securities) at a predetermined rate for a certain period.

In this case the trader (investor) can choose between execution of the contract and its failure. In both cases, possible losses due to interest paid and changes in asset prices. Unlike options transactions, where there are always paid the interest in futures and forward transactions are not lost interest.

Why use options? 1. To gain interest. 2. To be able to avoid adverse situations. For example, an aspiring financial manager wants to buy dollars at the end of the month, but as long as he did not buy, because it has all the necessary amount in rubles. The option seller says that the entire amount is not needed; you need to pay a small amount of interest. Manager fluctuates because has concerns that the dollar will fall in price in a month, and execution of the contract will be unprofitable. The option seller explains that do not worry, and if the dollar really falls so hard, the contract can not fulfill.

Another view of the options are binary options, details, see the Video.

Transactions of options may also be concluded on the stock exchanges and OTC markets.


Swaps - another common form of derivatives. The term swap s \ borrowed from English and has a so-called egoistic origin, i.e. sound of the word is a reflection of sound cotton hands. Thus he cotton - a symbol of the partners consent to conduct a transaction (exchange).

When swaps are not subject to exchange any assets (securities or currency), and they create cash flow. In the case of currency swaps data streams are tied to the value of foreign currency in the case of interest rate swaps - to yield debt, expressed as a percentage. Interestingly, when swapping operations principal amounts not subject to exchange are not transferred between the parties, but only used as a basis for calculations. What with the motivation for the transaction swapping between the parties? First, always a different assessment expectations on interest rates, as well as exchange rates. The second reason - needed changes in the structure of assets.

Summarize. Derivatives - an important and integral part of modern markets, both exchange and interbank. Options, futures and swapping operation let you receive a steady income as a regular trade in the Forex market.

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