A derivative security is a financial

A derivative security is a financial

contract between two parties for buying or selling a property, assets,

commodity, or other security at a predetermined price within a specific time.

Derivatives are used for hedging or gaining leverage.

Derivatives

are a type of security instrument that is generally publicly traded. Most

derivative securities are traded over-the-counter or OTC in personally negotiated

transactions between individuals.

Derivatives

have many uses in today’s market and are based on various types of transaction.

Common examples of derivative securities are Currency Future, Future Contract, Forward Contracts, options and swap.

When

using future contracts to hedge, business investment in the future markets

because they are attempting to lock in a more favourable price in advance of a

transaction, the advantage of this action is to ensure that by locking in a

price, companies can eliminate the risk of any unexpected expenses or losses

when buying or selling.

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