2. Financial derivatives are generated to hedge risks. But this is based on the premise that you have something that can be traded in kind.
3. There are many financial derivatives, which can be classified according to their own trading methods.
1) financial forward contract
2) Financial futures
3) Financial options
4) Financial swap
(The four most familiar tools).
Extended data:
Financial derivative is a concept corresponding to basic financial products, which refers to derivative financial products based on basic products or basic variables, and its price depends on the price (or value) change of the latter. The specific reasons are as follows:
(1) The most basic reason of financial derivatives is hedging. The interest rate market, exchange rate market, bond market and stock market fluctuated, and the market risk increased sharply, forcing commercial banks, investment institutions and enterprises to find financial instruments that can avoid market risks and hedge, and financial derivatives such as financial futures and options came into being.
(2) Financial liberalization since 1980s has further promoted the development of financial derivatives. Financial liberalization means that the government relaxes the laws, regulations and administrative controls that restrict the financial system and gives financial institutions a more relaxed and free development environment conducive to financial innovation.
(3) The profit drive of financial institutions is another important reason for the emergence and rapid development of financial derivatives. Financial institutions expand their profit sources by designing and developing financial derivatives and acting as intermediaries.
(4) The new technological revolution provides a material basis and means for the emergence and development of financial derivatives. The close relationship between the price changes of financial derivatives and the underlying assets, and the high complexity of price calculation and trading strategy all require strict computer and network technology. The development of science and technology has promoted the expansion of market scale and the improvement of transaction efficiency.