DERIVATIVES

MARKET
Group 1
LEARNING OBJECTIVES
To have knowledge about derivative market.

To learn about the use of derivatives, and to

identify the different participants in the
derivative market.
To know the different types of the derivative
market.
 WHAT IS A DERIVATIVE
MARKET?
A derivative is a financial contract which derives
its value from one or more underlying assets
which can be stocks, commodities, bonds,
currencies, market indexes, or interest rates.

A derivative is an instrument whose value depends

on the values of other more basic underlying
variables.
 USE OF DERIVATIVES

1. Hedge risk

2. Speculating in derivatives
 USE OF DERIVATIVES
1. Hedge risk
•Using derivatives for the objective of minimizing risk in the
physical market.
 USE OF DERIVATIVES
2. Speculating in derivatives
•Speculation on derivatives is motivated by profit rather than
a desire to mitigate risk.
 PARTICIPANTS IN A
DERIVATIVE MARKET
1. Hedgers
2. Speculators
3. Arbitrageurs
4. Margin Traders
 PARTICIPANTS IN A
DERIVATIVE MARKET
Hedgers
Hedging is when a person invests in financial
markets to reduce the risk of price volatility in
exchange markets, i.e., eliminate the risk of future
price movements.
 PARTICIPANTS IN A
DERIVATIVE MARKET
Speculators
Speculation is the most common market activity
that participants of a financial market take part in.
It is a risky activity that investors engage in.
 PARTICIPANTS IN A
DERIVATIVE MARKET
Arbitrageurs
Arbitrage is a very common profit-making activity
in financial markets that comes into effect by taking
advantage of or profiting from the price volatility of
the market.
 PARTICIPANTS IN A
DERIVATIVE MARKET
Margin Traders
In the finance industry, margin is the collateral
deposited by an investor investing in a financial
instrument to the counterparty to cover the credit
risk associated with the investment.
 TYPES OF DERIVATIVES
1. Forward Contract
2. Future Contract
3. Options
4. Swaps
 TYPES OF DERIVATIVES
FORWARD CONTRACT
It is a type of derivatives where two parties agree to
enter into a transaction of buying and selling. What
makes it different is that this transaction, which they
have agreed on, hasn't actually happened yet.
 TYPES OF DERIVATIVES
FUTURE CONTRACT
Futures are standardized contracts that are traded
on the exchanges. In forward and futures contract,
they obligate the user into buying an asset at a pre-
agreed price on a future date. The main difference
between them being that futures are traded in stock
exchanges while forwards are customized contracts
that are not traded anywhere.
 TYPES OF DERIVATIVES
OPTIONS
Options is a kind of financial derivative that gives the
buyer the right without any obligation to buy/sell the
underlying asset at a pre-determined price. There are
two kinds of options - call and put option. However, to
buy any kind of options one has to be a premium
 TYPES OF DERIVATIVES
SWAPS
Swaps allow the exchange of cash flows between
two parties. The three most popular type of swaps
are interest rate swaps, commodity swaps and
currency swaps.
 KEY TAKEAWAYS:
A derivative is a financial contract which derives
its value from one or more underlying assets.

Derivatives can be forward, future contract,

options or swaps.
Most derivatives are used as a hedging tool or to
speculate changes in the prices of an underlying
asset. Derivatives are highly leveraged instruments
which increases their potential risk and rewards.
 REFERENCES:
https://www.investopedia.com/terms/d/derivative.asp

https://www.elearnmarkets.com/blog/understanding-
derivatives-market/?fbclid=IwAR0z3JEHK6NCp0l-
d6sCWeARZwCuG9OtBbDsxpRdeZT1ARI-1F6Zg5gTtC4

https://corporatefinanceinstitute.com/resources/knowled
ge/trading-investing/derivatives-market/
THANK YOU!
GROUP 1
Leader:
MATULAC, JABEZ
Members:

ALMARAS,CHRISZSA
VASQUEZ, MAVIL
PESQUERA, DALYN