The derivatives markets are the financial markets for derivatives. In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds The bond market (also known as the debt, credit, or fixed income market) is a Financial market where participants buy and sell Debt Fixed income refers to any type of Investment that yields a regular (or fixed return A Corporate Bond is a bond issued by a Corporation. The term is usually applied to longer-term debt instruments generally with a maturity date falling at least a A government bond is a bond issued by a national government denominated in the country's own Currency. In the United States, a municipal bond (or muni) is a bond issued by a city or other local government or their agencies Bond valuation is the process of determining the Fair price of a bond. In Finance, a high yield bond ( non-investment grade bond, speculative grade bond or junk bond) is a bond that is rated below A stock market, or (equity market is a private or public market for the trading of company Stock and derivatives of company Software for Fixed assets management and Stock control developed in 2004. Preferred stock, also called preferred shares or preference shares, is typically a higher ranking stock than Voting shares, and its terms are negotiated A voting share (also called common stock or ordinary share) is a share of Stock giving the Stockholder the right to vote on matters A Registered share is a Stock that is registered on the name of the exact owner A voting share (also called common stock or ordinary share) is a share of Stock giving the Stockholder the right to vote on matters A stock exchange, share market or bourse is a Corporation or Mutual organization which provides "trading" facilities for Stock The foreign exchange ( currency or forex or FX) market refers to the market for currencies. In Finance, a credit derivative is a derivative whose value derives from the Credit risk on an underlying bond loan or other financial asset '"Hybrid securities"' often referred as "hybrids" are a broad group of securities that combine the elements of the two broader groups of securities Debt and Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures In Finance, a futures contract is a standardized Contract, traded on a Futures exchange, to buy or sell a certain Underlying instrument A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future For the Thoroughbred horse racing champion see Swaps (horse. In finance a swap is a derivative in which two counterparties Commodity markets are markets where raw or primary products are exchanged In Finance, the money market is the global Financial market for short-term borrowing and lending Over-the-counter ( OTC) trading is to Trade Financial instruments such as Stocks bonds, commodities or derivatives Real estate is a legal term (in some jurisdictions notably in the USA, United Kingdom The spot market or cash market is a Commodities or Securities market in which goods are sold for Cash and delivered immediately The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds There are two basic financial market participant categories Investor vs Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments The market can be divided into two, that for exchange traded derivatives and that for over-the-counter derivatives. Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments The legal nature of these products is very different as well as the way they are traded, though many market participants are active in both.
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Futures markets
- Main article: Futures exchange
Futures exchanges, such as Euronext.liffe and the Chicago Mercantile Exchange, trade in standardized derivative contracts. A futures exchange is a central financial exchange where people can trade standardized Futures contracts; that is a contract to buy specific quantities of a Commodity Euronext NV is a pan- European Stock exchange based in Paris and with subsidiaries in Belgium, France, Netherlands These are options contracts and futures contracts on a whole range of underlying products. Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures In Finance, a futures contract is a standardized Contract, traded on a Futures exchange, to buy or sell a certain Underlying instrument In finance the underlying of a derivative is an Asset, basket of assets, index, or even another derivative such that the cash flows of the The members of the exchange hold positions in these contracts with the exchange, who acts as central counterparty. A counterparty (sometimes contraparty) is a legal and financial term When one party goes long (buys) a futures contract, another goes short (sells). In finance a long position in a security such as a Stock or a bond, or equivalently to be long in a security means the holder of the position owns the In Finance, short selling or "shorting" is the practice of selling a Financial instrument that the seller borrows first (does not own and then When a new contract is introduced, the total position in the contract is zero. Therefore, the sum of all the long positions must be equal to the sum of all the short positions. In other words, risk is transferred from one party to another. The total notional amount of all the outstanding positions at the end of June 2004 stood at $53 trillion. The notional amount (or notional principal amount or notional value) on a financial instrument is the nominal or face amount that is used to calculate payments made (source: Bank for International Settlements (BIS): [1])
Over-the-counter markets
Tailor-made derivatives traded on a futures exchange, are traded on over-the-counter markets, also known as the OTC market. The Bank for International Settlements (or BIS) is an International organization of Central banks which "fosters international monetary and These consist of investment banks who have traders who make markets in these derivatives, and clients such as hedge funds, commercial banks, government sponsored enterprises, etc. Investment banks profit from companies and governments by raising money through issuing and selling Securities in the Capital markets (both equity and A market maker is a firm that quotes both a buy and a sell price in a Financial instrument or Commodity, hoping to make a profit on the turn A hedge fund is a private Investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment A commercial bank is a type of Financial intermediary and a type of Bank. The government sponsored enterprises (GSEs are a group of Financial services corporations created by the United States Congress. Products that are always traded over-the-counter are swaps, forward rate agreements, forward contracts, credit derivatives, etc. Over-the-counter ( OTC) trading is to Trade Financial instruments such as Stocks bonds, commodities or derivatives For the Thoroughbred horse racing champion see Swaps (horse. In finance a swap is a derivative in which two counterparties In finance a forward rate agreement ( FRA) is a Forward contract in which one party pays a fixed interest rate and receives a floating interest rate equal to a A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future In Finance, a credit derivative is a derivative whose value derives from the Credit risk on an underlying bond loan or other financial asset The total notional amount of all the outstanding positions at the end of June 2004 stood at $220 trillion. The notional amount (or notional principal amount or notional value) on a financial instrument is the nominal or face amount that is used to calculate payments made (source: BIS: [2])
Netting
Global: The notional outstanding value of OTC derivatives contracts rose by 36% from $197 trillion at end-2003 to $270 trillion in June 2005. Since end-2000, notional value has increased nearly threefold. Average daily global turnover rose from $764bn to $1508bn between April 2001 and April 2004. The UK reinforced its position as the leading derivatives center with its share of turnover rising from 36% to 43% during this period.
Interest rate instruments remain the key driver of global trading, accounting for 76% of notional value. Derivatives based on foreign exchange contracts also form an important sphere of activity as do equity-linked and commodity contracts. Credit, energy, metal and freight derivatives have grown rapidly in recent years. The euro and the US dollar dominate interest rate derivatives worldwide with 37% and 35% shares respectively based on notional value in June 2005. Turnover data for April 2004 indicated a rather higher share for euro-based derivatives trading. Financial institutions such as hedge funds, mutual funds, insurance companies and smaller banks have become much bigger users of derivatives. [3]
US: Figures below are from September, 2005 [4]
- Total derivatives (notional amount): $96. 2 trillion (September, 2005)
- Interest rate contracts: $82. 0 trillion
- Foreign exchange contracts: $8. 6 trillion
- Total number of commercial banks holding derivatives: 769
See also
Commodity markets are markets where raw or primary products are exchanged Securitization is a Structured finance process which involves pooling and repackaging of Cash flow producing financial AssetsDictionary
derivatives market
-noun
- (economics) A market where various financial derivatives are bought and sold.
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