A derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often called the “underlying”. Derivatives can be used for a number of purposes – including insuring against price movements (hedging), increasing exposure to price movements for speculation or getting access to otherwise hard to trade assets or markets.
Types of Derivatives
Some of the more common derivatives include Forwards, Futures, Options, Swaps, and variations of these such as collateralize debt obligations, credit default swaps, and mortgage backed securities. Most derivatives are traded over-the-counter (off-exchange) or on an exchange, while most insurance contracts have developed into a separate industry. Derivatives are one of the three main categories of financial instruments, the other two being equities (i.e. stocks or shares) and debt (i.e. bonds and mortgages).
Awaiting a Leap
Kabir Securities Limited believes that, Bangladesh has a huge prospect in Derivatives Market, and has already took initiatives to prepare necessary knowledge and skills to operate in the derivatives market once that opportunity becomes open to the mass people of Bangladesh.