Financial derivatives are a kind of financial products, their value is higher than the change of other financial assets or indicators, and their main purpose is to help financial investors carry out effective risk management and investment strategy formulation. The following Options Gang will introduce the main functions of financial derivatives.
First, let's talk about what financial derivatives are
To put it simply, a financial derivative instrument is a financial instrument derived from other financial assets. For example, if an investor thinks that *** will, he can obtain this income by buying an option contract, which is a financial derivative instrument.
At present, financial derivatives can be classified differently according to the type of underlying instrument, risk, return characteristics and their own trading methods.
1) According to the classification of product forms, financial derivatives can be divided into independent derivatives and embedded derivatives.
2) According to the classification of trading venues, financial derivatives can be divided into exchange-traded derivatives and OTC trading derivatives.
3) According to the classification of basic instruments, financial derivatives can be divided into equity products and derivatives, currency derivatives, interest rate derivatives, credit derivatives and other derivatives.
4) According to the method and characteristics of financial derivatives trading, they can be divided into financial forward contracts, financial options, financial swaps and structured financial derivatives.
Secondly, the use of financial derivatives is mainly divided into five directions:
First, risk management.
By purchasing derivatives, investors can hedge their risk and reduce the volatility of their portfolios. For example, options contracts can be used to protect investors from risk.
Second, speculation.
The biggest use of financial derivatives is speculation, that is, to obtain profits by taking profits on future market movements. For example, if an investor believes that *** will, he can obtain this benefit by buying a put option contract, of course, there is a huge risk associated with this practice.
Third, arbitrage.
The existence of financial derivatives provides investors with the opportunity to arbitrage. By taking advantage of the differences between different markets or the spread between interrelated derivatives, investors can earn returns with lower risk.
For example, cross-market arbitrageurs can sell the same financial asset between different exchanges in order to take advantage of the difference.
Fourth, discovery.
The trading activities of financial derivatives in the market can provide a reference for the discovery of related assets. By trading financial derivative instruments, market participants can determine the fair value of an asset based on market supply and demand and information. For example, changes in the options market can reflect the market's supply and demand and expectations for a particular commodity.
Fifth, diversification of investment strategies.
That is, investors can allocate funds to different asset classes according to their own risk tolerance and return requirements.
By using financial derivatives such as options,** and swap contracts, investors can adjust their asset allocation more flexibly to achieve a balance of risk and return.
Well, that's the purpose of the derivatives we shared today. Although these tools may sound a bit mysterious, they actually play a very important role in the financial market, and I hope that all investors can better understand and use these financial tools in their future lives.
The above is what is a financial derivative instrument? What are the specific uses? Answer, I am [Option Gang], I wish you all a smooth transaction