What are the types of financial derivatives?
There are many kinds of financial derivatives, such as futures, options, swaps and forward contracts. Futures contract is a standardized contract, which is used to deliver the subject matter at a specific price at a certain time in the future. The theme can be commodities, exchange rates, stock indexes, etc. Commodity futures contracts stipulate the delivery date and commodity specifications. Option is the right to buy or sell the subject matter at a specific price. The buyer pays a certain option purchase fee when purchasing the option, and the option seller needs to pay a deposit as a performance guarantee. Options come from futures, so the investment risk is high. Swap is an agreement aimed at exchanging different kinds of cash flows or assets. Common swaps include interest rate swap, exchange rate swap and stock swap. Forward trading refers to trading the subject matter at a specific price on a specific date in the future. Forward trading is usually used to lock the price at a certain time to avoid the risk of price fluctuation.
What are the characteristics?
Financial derivatives trading has the characteristics of large price fluctuation, self-leverage, hedging and high requirements for investors. The price of financial derivatives changes rapidly and its price fluctuates relatively. Investors need to keep an eye on market conditions and grasp market changes in order to make timely trading decisions. Secondly, the leverage effect of financial derivatives is very obvious. Investors only need to pay a small margin to make large transactions, so the return on investment may be higher. But leverage can also amplify investment risks, so investors need to be more cautious. In addition, financial derivatives can be used for hedging to help investors avoid the risk of market fluctuations. For example, enterprises can use foreign exchange futures to lock the exchange rate and avoid exchange rate risks.