What are the advantages and disadvantages of derivatives?

There are four types of derivative financial products: options, forwards, futures and swaps. It was originally introduced for risk management purposes, i.e. for hedging.

The earliest products of this type include:

The most attractive thing about it is that it has the effect of operating with a small and large leverage, because traders can operate several times the value of the investment as long as they pay a small margin or premium. However, it is undeniable that these products almost set the investment settlement point after a certain period of time, so the risk becomes difficult to grasp, and the general ** generally feels that the risk is too big to try easily.

In recent years, with the increasing maturity of the financial industry, there are more and more new derivative products, among which the most popular is ETF, or "index **". This financial product has two major characteristics: first, it must be listed and traded in a centralized market; The second is that all ETFs have a tracking index, and the net value performance of the ETF** completely follows the trend of the index, and the constituent stocks of the index are the portfolio of the ETF**.

The focus of ETF operations is not to hit the index, but to track the index.

As follows: 1. Forward. Forward is a contract in which the two parties agree to buy and sell a certain amount of a certain underlying asset at a certain time in the future. Forward Contracts.

The underlying asset can be a commodity or a financial product.

2、**。Very similar to forwards, buyers and sellers agree to settle a specified amount of the underlying asset at a specified time, as well as other terms and conditions, by entering into a standardized contract.

3. Options. Option, also known as option, is a financial derivative instrument produced on the basis of **.

It refers to a right that gives the buyer (or option holder) the right to sell a certain amount of a specific underlying asset at a specific time in the future. The underlying assets of an option contract can be either underlying assets such as **, bonds, foreign exchange, etc., or derivatives such as **. The buyer of an option acquires this right by paying a fee to the seller, and can choose to exercise the right within a specified period of time, or to waive the right.

If the buyer decides to exercise its rights, the seller is obliged to cooperate.

4. Interchange. The last type is interchangeable. A swap is the exchange of cash flows between two or more economic agents for a certain period of time in the future under agreed conditions.

contract. Common financial swaps mainly include currency swaps and interest rate swaps.

Extended Materials. About amount derivatives.

1) Financial derivatives.

It refers to financial products based on traditional financial products such as currencies, bonds, and **, and characterized by leveraged credit transactions. There are many types of financial derivatives in the world, and active financial innovation activities continue to launch new derivatives. According to the product form, financial derivatives can be divided into four categories: forwards, options, swaps and swaps.

2) Financial derivatives refer to contracts whose value depends on changes in the value of the underlying asset. Such contracts can be standardized or non-standardized. Standardized contracts refer to the trading**, trading hours, asset characteristics, and trading methods of the underlying asset (underlying asset) that are standardized in advance, so most of these contracts are on exchanges.

Listed transactions, such as**. A non-standardized contract is one in which the above items are agreed upon by both parties to the transaction, so they have a strong degree of flexibility, such as a forward search contract.

3) The common feature of financial derivatives is margin.

Transaction, that is, as long as a certain percentage of the margin is paid, the full transaction can be carried out, without the actual transfer of principal, and the settlement of the contract is generally carried out by cash difference, and only the contract that is performed by physical delivery on the maturity date requires the buyer to pay the full loan. Therefore, financial derivatives trading has a leverage effect. The lower the margin, the greater the leverage and the greater the risk.

1. Financial derivatives.

It has the following four distinctive features:

1) Intertemporality.

Financial derivatives are contracts in which the two parties agree to trade or choose whether to trade at a certain time in the future through the trend of interest rates, exchange rates, stock prices and other factors.

2) Leverage.

Derivatives transactions generally require only a small amount of margin.

or the premium can be used to enter into a forward large contract or swap different financial instruments.

3) Linkage.

The value of a FDI is closely linked to the underlying product or underlying variable, and the rules change. In general, the payment characteristics associated with the underlying variable of a financial derivative instrument are specified by the derivative contract, and its linkage relationship can be either a simple linear relationship, or it can be expressed as a nonlinear function or a piecewise function.

4) High risk.

The consequences of trading in financial derivatives depend on the trader's accuracy of the trader's judgment of the future (value) of the underlying instrument (variable). The vagaries of the underlying instrument** determine the volatility of the profit and loss of financial derivatives trading.

2. The most common derivative financial instruments.

The main ones are forwards, **, options and swaps.

1. Long-term. A forward contract is a contract for the sale of an underlying asset by a trader on an agreed basis to a trader at a certain point in the future. The difference between a forward contract and a spot contract is that the transaction agreed in the spot contract will be executed immediately, while the transaction agreed in the forward contract will occur at an agreed time in the future.

2、**。Contracts are essentially similar to forward contracts, which are contracts in which the two parties agree to buy or sell an asset at a certain time in the future according to the pre-agreed contract. Unlike forward contracts, ** contracts are not over-the-counter markets.

Trading, but on the exchange market, ** contracts are standardized contracts.

3. Options. Option contracts are fundamentally different from forwards and **, and the direct consideration between the two parties to the option contract transaction.

It is a certain option, the right to purchase a certain asset or a certain asset according to the agreed ** at an agreed time in the future. It is divided into call options.

and puts.

4. Interchange. A swap agreement is an agreement between the parties to a transaction to exchange cash flows multiple times over a period of time in the future.

In the agreement, the parties must agree in advance on the timing of the cash flow exchange and the calculation method of the cash flow, and the swap agreement is a derivative traded in the over-the-counter market.

Financial derivatives are a class of financial products derived from financial instruments, and their value is ** the change of the underlying asset ** or the index, rather than directly ** the value of the asset itself. Financial derivatives usually include various types such as options, **, swaps, etc., which can be used for a variety of purposes such as hedging risks, achieving speculative returns, and managing asset portfolios.

Specifically, financial derivatives have the following functions:

1.Risk management: Financial derivatives are an effective tool that can be used to hedge different types of risks, including market risk, credit risk, interest rate risk, exchange rate risk, etc. By selling or selling financial derivatives, investors can lock in and reduce risk.

2.Speculative trading: Financial derivatives can also be used for speculative trading, through the sale of financial derivatives to obtain profits from market fluctuations.

3.Discovery: The price of financial derivatives is determined by market supply and demand, and its changes can reflect the market's expectations of the underlying asset and the supply and demand of the market.

4.Asset allocation: Financial derivatives can be used to manage portfolios, adjust portfolio weights or hedge risks in portfolios by selling or selling financial derivatives.

Financial derivatives are usually characterized by high risk and high leverage, and investors need to carefully assess their own risk tolerance when using financial derivatives to avoid unexpected losses.

According to the data of the sect (one-stop** data decision-making, provided**FundamentalsData, funding data, research reports, etc.) officially learned:

What are Financial Derivatives? Financial derivatives are based on underlying financial instruments.

Such as currencies, exchange rates, interest rates, ** indexes.

It is also derived from traditional financial products and used as the object of buying and selling. Unlike other financial instruments, financial derivatives do not have value in themselves, and are derived from the value of currencies, exchange rates, etc., which can be traded using derivatives. The most commonly used derivatives in the international financial market are financial**, options and swaps (also known as swaps).

Wait. The role of financial derivatives:The function of financial derivatives is to avoid risks, ** discovery is a good way to hedge the risk of assets, however, everything has a good side and a bad side, someone must take risk aversion.

The high leverage of derivatives is to transfer a huge amount of risk to those who are willing to take it, traders can be divided into three categories: hedgers, speculators and arbitrageurs, hedgers use derivative contracts to reduce their exposure to risk due to market changes, speculators use these products to bet on the future trend of market variables, arbitrage uses two or more trades that cancel each other to lock in profits, these three types of traders jointly maintain financial derivatives.

of the above features.

Financial derivatives.

The role is as follows:

1. The functions of financial derivatives mainly include risk avoidance, rotten liquid discovery, and hedging.

improve financial innovation capabilities, etc.

2. It can help financial institution managers to better control risks.

3. Financial derivatives play a great role in optimizing resource allocation, reducing the overall financial risk of the country, absorbing idle funds in society, effectively increasing market liquidity, and improving transaction efficiency.

null)What are the basic characteristics of the derivative finance market?

See the answer explained[Answer].(1) Standardization of trading product design;

2) Based on margin trading, the leverage effect of the mountain is buried in this belt.

[Analysis].This question examines the basic characteristics of derivative financial markets.

Financial derivatives include forwards, **, swaps (swaps) and options. A financial derivative is a financial contract based on an underlying financial instrument whose value depends on one or more underlying assets or indices. Such contracts can be standardized or non-standardized.

Standardized contracts refer to the trading of the underlying asset (underlying asset), trading time, asset characteristics, trading methods, etc., which are standardized in advance, so most of these contracts are listed and traded on exchanges, such as **. A non-standardized contract is one in which the parties to the transaction agree on each of the above items and therefore have a strong degree of flexibility, such as a forward agreement.

Financial derivatives are financially related derivatives, usually referring to financial instruments derived from underlying assets. Its common feature is margin trading, that is, as long as a certain percentage of the margin is paid, the full amount of the transaction can be carried out, without the actual transfer of principal, and the closing of the contract is generally settled by cash difference, and only the contract that is performed by physical delivery on the maturity date requires the buyer to pay the full loan. Therefore, financial derivatives trading has a leverage effect.

The lower the margin, the greater the leverage and the greater the risk.

Feature 1: Intertemporal.

Financial derivatives are contracts in which the two parties agree to trade or choose whether to trade at a certain time in the future through the trend of changes in interest rates, exchange rates, stock prices and other factors. No matter what kind of financial derivative instrument it is, it will affect the cash flow of traders in the future or at a certain time in the future, and the characteristics of calendar trading are very prominent. This requires both parties to make a judgment on the future trend of interest rates, exchange rates, stock prices and other factors, and the accuracy of the judgment directly determines the trader's trading profit and loss.

Feature 2: Linkage.

This refers to the fact that the value of a FDI is closely linked to the underlying product or underlying variable, and the rules change. Generally, the payment characteristics associated with the underlying variables of financial derivatives are specified in the derivatives contract, and their linkage relationship can be either a simple linear relationship, or it can be expressed as a nonlinear function or a piecewise function.

The so-called derivatives refer to things derived from the original things, such as soy milk, which can be called derivatives of soybeans. Financial derivatives refer to the trading forms derived from traditional financial business in the past.

According to the definition of the financial community, financial derivatives are related to the swap of cash flow or a bilateral contract aimed at transferring risk for traders, common forward contracts, options, swaps, etc., the international financial derivatives are varied, in China's current stage of financial derivatives trading mainly refers to the financial business centered on the first. It can be divided into commodities and finance, the latter mainly including currencies, interest rates and indices.

From the perspective of the types and definitions of financial derivatives, its biggest feature is that it relies on an investment mechanism to avoid the risk of capital operation, and at the same time has the function of speculating transactions in the financial market and attracting investors.