1, forward contracts and futures contracts
The two parties agree to buy and sell a certain amount and quality of assets at a certain price at a certain time in the future. Futures contracts are standardized contracts formulated by futures exchanges, which stipulate the expiration date of contracts and the types, quantity and quality of assets to be bought and sold. Forward contracts are contracts signed by buyers and sellers according to their special needs. Therefore, the liquidity of futures trading is high and the liquidity of forward trading is low.
2. Swap contracts
It is a kind of contract signed by both sides of internal transaction to exchange certain assets with each other in a certain period in the future. He said, more accurately, the swap contract is a contract signed by both parties to exchange cash flows that they think are of equal economic value in a certain period in the future. Interest rate swap contracts and currency swap contracts are more common. If the swap currency specified in the swap contract is the same currency, it is an interest rate swap; If it is a foreign currency, it is a currency swap.
3. Buying and selling options
This is a transaction of buying and selling rights. Option contracts stipulate the right to buy and sell a certain kind, quantity and quality of primary assets at a certain time and at a certain price. Option contracts include standardized contracts listed on exchanges and non-standardized contracts traded over the counter.
Financial derivatives have the following characteristics:
1, zero-sum game
That is, the gains and losses of both parties to a contract transaction (which are uncertain because they can trade in standardized contracts) are completely negatively correlated, and the net gains and losses are zero, so it is called "zero sum".
2. Intertemporal
Financial derivatives refer to contracts in which both parties agree to trade or choose whether to trade at some future time by predicting the changing trend of interest rates, exchange rates, stock prices and other factors. No matter what kind of financial derivatives, it will affect the cash flow of traders in the future or at some time in the future, and the characteristics of intertemporal trading are very prominent. This requires both parties to judge the future trend of interest rate, exchange rate, stock price and other price factors, and the accuracy of judgment directly determines the trader's trading profit and loss.
Step 3 contact
Here, the value of financial derivatives is closely related to basic products or basic variables, and the rules change. Usually, the payment characteristics of financial derivatives associated with basic variables are stipulated in derivatives contracts, and their linkage relationship can be simple linear relationship, nonlinear function or piecewise function.
4. Uncertainty or high risk
The trading consequences of financial derivatives depend on the accuracy of traders' prediction and judgment on the future price of basic instruments. The unpredictability of the price of basic instruments determines the instability of the profit and loss of financial derivatives trading, which is an important incentive for financial derivatives to have high risks.
(Source: Financial Derivatives-Baidu Encyclopedia)