Features of Financial Derivative

    The following are the main features of financial derivatives:

    1) The transactions in derivatives are separate from the transactions in the underlying securities.

    2) The financial derivative is priced according to the value of the underlying asset.

    3) Financial derivatives are used for a wide variety of reasons such as hedging, risk management, and in many cases, for speculation.

    4) The settlement of derivatives generally takes place through the net payment of cash. It is also generally done before the maturity date.

    5) Financial derivatives allow for geared returns, which are generally higher than the returns made by investing’ in the underlying.

    However, it also increases the risk. For example, paying the premium is all that is required to invest in options. The potential returns can be substantial.

    6) The risk involved with derivative trading may be mitigated through trading or through the contract. The offset ability of the derivatives can be achieved through the use of options of Other hedging activities.

    Disclaimer: While we make every effort to update the information, products, and services on our website and related platforms/websites, inadvertent inaccuracies, typographical errors, or delays in updating the information may occur. The material provided on this site and associated web pages is for reference and general information purposes only. In case of any inconsistencies between the information provided on this site and the respective product/service document, the details mentioned in the product/service document shall prevail. Subscribers and users are advised to seek professional advice before acting on the information contained herein. It is recommended that users make an informed decision regarding any product or service after reviewing the relevant product/service document and applicable terms and conditions. If any inconsistencies are observed, please reach out to us.

    Latest Articles

    Related Stories

    Leave A Reply

    Please enter your comment!
    Please enter your name here

    Join our newsletter and stay updated!