Derivative instrument is a kind of financial instrument. The value of related assets or financial instruments has no intrinsic value, but the value is determined by the value of related assets or financial instruments. At present, the derivatives market is dominated by buying and selling financial derivatives, and commodity derivatives still occupy an important position in the global market. Financial derivatives are the mainstream in Hong Kong, including commodity derivatives and financial derivatives. Financial derivatives include stocks and bonds, futures and options, interest rate futures options, currency futures and options. Functional risk management of derivatives can reduce borrowing costs and improve flexibility. The main operating methods are hedging, speculation and hedging.
The trading methods of derivatives can be divided into exchange trading. Over-the-counter derivatives refer to the transactions conducted on the exchange, and the internal transactions of derivatives have always been conducted by public outcry. Other exchanges still use open outcry for trading. Futures trading on most exchanges has been electronic, and derivatives are also traded on exchanges.
In addition to financial instruments, it also includes millet, oats and soybeans. And index futures, options and warrants. Stock futures, option bills, futures options, bond futures and options.
OTC derivatives are characterized by not including exchanges and acting as sales settlement counterparties for buyers and sellers. OTC derivatives are not conducted through the central trading place, but through telephone and computer systems, which can be set according to the specific needs of both parties to the transaction. Rather than standardized over-the-counter transactions, it is a contractual arrangement between the two parties. The risk of default is higher than that of OTC derivatives, and the related risks become credit risks.