Derivatives

Derivatives

Context: The RBI has postponed the implementation of regulations on exchange-traded currency derivatives by one month, leading traders to liquidate their positions..
About Derivatives:
Topic Description
Derivatives: Financial contracts whose value is based on an underlying asset, group of assets, or benchmark. Used for trading and risk management purposes.Common types include futures contracts, forwards, options, and swaps. Prices of derivatives are driven by changes in the underlying assets value.
Underlying Assets: Stocks, bonds, commodities, currencies, interest rates, and market indexes are commonly used as underlying assets for derivatives.
Purpose: Derivatives are utilized for speculation, hedging against risks, and gaining exposure to additional assets or markets.

Types of Derivatives: 
- Exchange-Traded Derivatives (ETDs): Standardized contracts traded on stock exchanges. Examples include futures contracts and options.
- Over-the-Counter (OTC) Derivatives: Customized contracts traded directly between private parties without a formal intermediary. Examples include swaps and certain forwards.

Exchange Traded
Currency Derivatives: Financial contracts traded on exchanges that allow speculation on future price movements of currency pairs. The value of these derivatives is based on currency exchange rates.

Common Derivatives
- Futures Contracts: Agreements to buy or sell assets at a predetermined price on a specific future date.
- Options Contracts: Provide the holder with the right (but not the obligation) to buy (call option) or sell (put option) an asset at a specified price by a certain date.
- Swaps: Agreements to exchange cash flows based on specific financial variables (e.g., interest rates, currencies). Used for managing risks or altering financial obligations.
- Forwards: Similar to futures contracts but customized and not traded on exchanges. Involve agreements to buy or sell assets at predetermined prices on future dates.