Ever wondered how traders protect themselves from unpredictable market swings? DERIVATIVES Simplified for 20 Yrs OldWHAT ARE DERIVATIVES ? ¢ Derivatives are financial contracts that derive their value from an underlying asset. ¢ They can be thought of as "betting" on the future price or performance of something. e - , Qo ™ : = +EXAMPLES OF DERIVATIVES Options: * Contracts that give the holder the right to buy or sell an asset at a predetermined price. Swaps: ¢ Agreements to exchange cash flows or other assets between parties Futures: ¢ Contracts to buy or sell an asset on a future date at a fixed price. Forwards: ¢ Agreements to buy or sell an asset at a future date, but without a standardized contract like futures.hers) RIVATIVES ? Hedging: * Derivatives can be used to protect against potential losses or risks. Speculation: * Some traders use derivatives to try and profit from price movements. Arbitrage: * Derivatives can be used to take advantage of price differences between markets. SELL ey ‘Buyers: * Those who purchase derivatives to gain exposure or manage risks. Sellers: ¢ Those who sell derivatives to earn premiums or take on risks. Exchanges: ¢ Platforms where derivatives are traded similar to a marketplace. ’RISKS ASSOCIATED WITH DERIVATIVES Volatility: * Derivatives can be highly sensitive to changes in prices or market conditions. Counterparty Risk: e There's a risk that the other party involved may not fulfill their obligations. Complexity: ° Derivatives can be complex and require a good understanding before trading. aHOW THEY IMPACT THE ECONOMY ? Price Discovery: ¢ Derivatives help determine the fair value of assets and contribute to market efficiency. Risk Management: ¢ Derivatives allow businesses to manage risks associated with fluctuating prices. Liquidity: * Derivatives can provide liquidity to markets by facilitating trading and price stability. 1&9 é.5 ~CONCLUSION * Derivatives can be powerful financial tools, but they come with risks. ¢ Learning about derivatives and their impact on the economy will help you make informed decisions in the future.Hope you learned something new today! ‘in| Krushna Akele Follow for more such content