Types of financial derivatives:
1. According to product form classification, the types of financial derivatives include independent derivatives and embedded derivatives.
2. According to the classification of trading venues, the types of financial derivatives include exchange-traded derivatives and OTC-traded derivatives.
3. According to the classification of basic instrument types, the types of financial derivatives include equity derivatives, currency derivatives, interest rate derivatives, credit derivatives and other derivatives.
4. According to the nature of the original assets of derivatives, financial derivatives can be divided into stocks, interest rates, exchange rates and commodities.
5. According to product type, financial derivatives can be divided into four major types: forwards, futures, options and swaps.
6. According to the trading methods and characteristics of financial derivatives, the types include financial forward contracts, financial futures, financial options, financial swaps and structured financial derivatives.
Basic characteristics of financial derivatives:
1. Intertemporal nature. Financial derivatives are contracts in which both parties to a transaction predict the changing trends of factors such as interest rates, exchange rates, stock prices, etc., and agree to conduct transactions or choose whether to transact under certain conditions in the future.
No matter what kind of financial derivatives it is, it will affect the trader's cash flow in the future or at some point in the future. The characteristics of intertemporal trading are very prominent.
2. Leverage. Financial derivatives transactions generally only require the payment of a small amount of margin or premium to sign a large forward contract or swap different financial instruments. While profits may be multiplied, the risks and losses borne by traders will also be multiplied. Slight changes in the price of basic instruments may lead to large profits and losses for traders.
3. Linkage. The value of financial derivatives is closely related to the underlying products or underlying variables, and the rules change. Usually, the payment characteristics associated with financial derivatives and underlying variables are specified by the derivatives contract, and the linkage relationship can be a simple linear relationship, or it can be expressed as a nonlinear function or a piecewise function.
4. Uncertainty or high risk. The trading consequences of financial derivatives depend on the accuracy of the trader's prediction and judgment of the future price (value) of the underlying instrument (variable). The unpredictable price of basic instruments determines the instability of profits and losses in financial derivatives transactions, which is an important reason for the high risk of financial derivatives.
Are financial instruments and financial derivatives the same?
Not the same, the difference is as follows:
1. Different definitions
Financial instruments are also called "credit instruments" or "trading instruments". Departments lacking funds provide funds to When the surplus department borrows funds, or the issuer raises funds from investors, a written document made in a certain format, which determines the obligations of the debtor and the rights of the creditor, is a legally binding contract.
Financial derivatives, also known as "financial derivatives", are a concept corresponding to basic financial products. They are based on basic products or basic variables, and their prices follow the prices of basic financial products. Derivative financial products that change in value (or value).
2. Different characteristics
Financial instruments are the objects of financial market transactions. They are produced and developed with the development of credit relationships. Modern complicated financial financing relationships cannot be handled by verbal agreements.
Words that are unsubstantiated can easily lead to disputes and cannot transfer or circulate claims or ownership rights in the market. Financial derivatives are financial instruments that are derived from traditional financial instruments such as currencies, bonds, and stocks, and are characterized by leverage and credit transactions.
3. Different classifications
In order to meet the needs of various credit forms, financial instruments have produced products such as commercial bills, bank deposit certificates, stocks, and bonds.
Financial derivatives can be classified differently according to the type of underlying instrument, risk-return characteristics and their own trading methods. According to product type, financial derivatives can be divided into four major types: forwards, futures, options and swaps. According to the original asset nature of derivatives, financial derivatives can be divided into stocks, interest rates, exchange rates and commodities.