Derivative Instrument and Derivative Market Features

What a derivative is and the features every contract shares (underlying, counterparties, maturity, settlement, contract size), the split between firm commitments and contingent claims, why issuers and investors use derivatives, the main underlyings from equities to credit, and how over-the-counter and exchange-traded markets work, including central clearing through a CCP.

1. 1. What a derivative is and how a contract is builtA derivative is a contract to exchange cash flows in the future, with an amount that depends on an underlying, so it reshapes the underlying's performance instead of simply passing it through.Free13 min
2. 2. Firm commitments, contingent claims and why derivatives are usedDerivatives come in two families, firm commitments that both sides must honour and contingent claims where one side chooses, and they widen what investors and issuers can do beyond the spot market.12 min
3. 3. Derivative underlyings: equities, rates, currencies, commodities, creditDerivatives are grouped by what they reference, and each family of underlyings serves typical users: investors reshaping portfolios and issuers or producers managing business risks.15 min
4. 4. OTC and exchange-traded derivative marketsOTC derivatives are private, customized contracts with a dealer, while exchange-traded derivatives are standardized, transparent and backed by collateral and an exchange guarantee.14 min
5. 5. Central clearing and central counterpartiesSince 2008 most OTC derivatives must be cleared through a central counterparty, which keeps OTC flexibility for end users while handling credit risk the way exchanges do, at the cost of concentrating risk in the CCP.12 min