OpenMarkets Education

What is a derivative?

Derivatives are financial instruments whose value is derived from underlying assets, such as shares, fixed income securities, indices, commodities and currencies.

A derivative?s profitability is based on whether the value of the underlying asset increases or decreases by a specific date.

The most commonly used derivatives are:

FuturesA contract to receive or deliver an asset on a designated date at an agreed price.
A futures contract allows the holder to fix a price today for something they want to buy or sell in the future.
OptionsA contract between two parties in which one party has the right, but not the obligation, to buy or sell an asset at a set price within an agreed time frame.
WarrantsA product that gives the holder the right to buy, sell or cash settle the underlying instrument with the warrant issuer for a specific price at a specific time, as detailed in the terms of issue.
Contracts for Difference (CFDs)A leveraged instrument that provides exposure to shares, indices, commodities and currencies with the potential to take advantage of rising and falling markets.

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