An important element of the financial system is 101 000 derivative securities, often referred to as derivatives. Their value is determined in other underlying assets. Such as stocks, bonds and commodities. In fact, derivative securities are instruments that allow investors to take or limit risks. Derivative securities include options, futures, foreign exchange swaps, futures. There are many types of derivative financial instruments, but they can be divided into five main families: linear, nonlinear, swap, structured products and hybrid products. Although each family has unique characteristics, all derivatives have some similarities.

General characteristics of derivatives

All derivatives are used in one of three ways. First, they can be used to hedge risks. Secondly, you can use derivatives to speculate on the market. Thirdly, derivatives can be used to offset positions on multiple instruments, thus establishing profits without additional risk.

Derivatives may be sold in organised markets or as private contracts between two or more counterparties in an over-the-counter market. Derivative securities on exchanges observable prices, which is not the case in over-the-counter markets.

Typically, derivatives allow investors to access the market with little or no initial investment using leverage. For example, you can use the option to manage 100 shares for a small portion of the share price.

All derivatives have an expiry date. When derivatives expire, they become useless.

The main function of clearing houses is to ensure that performers comply with their contractual obligations relating to the derivative. They are responsible for several activities, including:

transactions. Coordinate orders between buyers and sellers, ensuring that all information is correct and that all accounts are verified; money transfers between counterparty accounts; margin management. Some derivative items require a cash advance, known as as an initial margin as well as a fixed cash deposit known as a supporting margin. Reporting. Clearing houses provide trade data such as volume and open contracts.

Clearing Houses controls trading in derivatives on exchanges. They are external intermediaries, that is, they regulate options trading on exchanges.

Futures and Options Traders must be either a member of the clearing house or represented by brokers.

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