Futures. Options. Forwards. Margins. Algorithms. Liquidity. If you think this is all above your head, think again.
Understanding derivatives starts with understanding one simple concept: risk. If you buy everyday products, own property, run a business or manage money for investors, risk is all around you every day. For some, risk stands between them and progress. For others, risk represents an opportunity to invest. If you’ve bought or sold a home, a car or shares of stock, you know that there is always a risk that the price of what you buy or sell today could shift depending on market movement.
In a derivatives marketplace, individuals and businesses everywhere are able to lock in a future price by putting it into a binding contract. These products are called futures and options – contractual agreements to buy or sell an amount of something at a fixed price at a future date.
This enables them to navigate business and financial risks or assume risk in an effort to make money when prices fluctuate.