What are Financial Derivatives?
Ruder: A financial derivative is a contract that derives its values from the value of an underlying commodity, financial asset or other reference. In a derivative instrument you are betting about the future value of the underlying asset or reference. Exchange traded derivatives have long been supported as a means of providing hedges against changes in the value of the asset or reference. If you want to make a bet on the future value of an underlying asset such as a stock, you could enter into a contract with another party to make that bet and protect yourself against ups and downs in the market in that underlying asset. So the derivative is not evidence of ownership in anything. Again it is essentially a contract regarding future values of an underlying reference. MM: How are financial derivatives regulated in the United States? Ruder: The financial derivatives that have uniform language will usually be traded on a futures exchange. The futures exchange clearing corporation then become
A derivative is a financial instrument that derives or gets it value from some real good or stock. It is in its most basic form simply a contract between two parties to exchange value based on the action of a real good or service. Typically, the seller receives money in exchange for an agreement to purchase or sell some good or service at some specified future date. The largest appeal of derivatives is that they offer some degree of leverage. Leverage is a financial term that refers to the multiplication that happens when a small amount of money is used to control an item of much larger value. A mortgage is the most common form of leverage. For a small amount of money and taking on the obligation of a mortgage, a person gains control of a property of much larger value than the small amount of money that has exchanged hands. Derivatives offer the same sort of leverage or multiplication as a mortgage. For a small amount of money, the investor can control a much larger value of company st
