Financial derivatives (derivatives) refer to contracts whose value depends on changes in the value of underlying assets (underlyings). Such contracts can be standardized or non-standardized. A standardized contract means that the trading price, trading time, asset characteristics, trading methods, etc. of its subject matter (basic asset) are all standardized in advance. Therefore, most such contracts are listed and traded on exchanges, such as futures. Non-standardized contracts refer to the above items that are agreed upon by both parties to the transaction, so they are highly flexible, such as forward agreements.
Financial derivatives are financial-related derivatives, usually referring to financial instruments derived from original assets (Underlying Assets in English). Its most unique feature is margin trading, that is, as long as a certain proportion of margin is paid, full transactions can be carried out without actual transfer of principal. The settlement of the contract is generally carried out by cash difference settlement, and only on the expiration date. Only contracts that are performed by physical delivery require the buyer to pay a full loan. Therefore, financial derivatives transactions have a leverage effect. The lower the margin, the greater the leverage effect and the greater the risk.
From the current basic classification, there are mainly three categories:
(1) According to the product form, it can be divided into four categories: forwards, futures, options and swaps. Categories.
(2) According to the classification of original assets, namely stocks, interest rates, exchange rates and commodities. If further subdivided, the stock category includes specific stocks (stock futures, stock option contracts) and stock index futures and options contracts formed by stock combinations; the interest rate category can be further divided into short-term deposit interest rates as represented by Short-term interest rates (such as interest rate futures, interest rate forwards, interest rate options, interest rate swap contracts) and long-term interest rates represented by long-term bond interest rates (such as bond futures, bond option contracts); the currency category includes various currencies ratio; the commodity category includes various bulk physical commodities.
(3) According to the trading method, it can be divided into on-site trading and over-the-counter trading. On-exchange trading is usually referred to as exchange trading, which refers to a trading method in which all supply and demand parties are concentrated on the exchange for bidding transactions. OTC trading is over-the-counter trading, which refers to a trading method in which both parties directly become counterparties, and its participants are limited to customers with high creditworthiness.
Specific reference: "Securities Investment"