User:Viva Caligula/sandbox

LOL Matthew Richard "Matt" Stone (born May 26, 1971)

OTC and exchange-traded

 * Over-the-counter (OTC) derivatives are contracts that are traded


 * Exchange-traded derivatives (ETD) are those derivatives instruments that are traded via specialized

Common derivative contract types
Some of the common variants of derivative contracts are as follows:
 * 1) Forwards: A tailored contract between two parties, where payment takes place at a specific time in the future at today's pre-determined price.
 * 2) Futures: are contracts to buy or sell an asset on a future date at a price specified today. A futures contract differs from a forward contract in that the futures contract is a standardized contract written by a clearing house that operates an exchange where the contract can be bought and sold; the forward contract is a non-standardized contract written by the parties themselves.
 * Swaps can basically be categorized into two types:
 * Interest rate swap: These basically necessitate swapping only interest associated cash flows in the same currency, between two parties.
 * Currency swap: In this kind of swapping, the cash flow between the two parties includes both principal and interest. Also, the money which is being swapped is in different currency for both parties.

Some common examples of these derivatives are the following:

Criticisms
Derivatives are often subject to the following criticisms:

Hidden tail risk
According to Raghuram Rajan, a former chief economist of the International Monetary Fund (IMF), "... it may well be that the managers of these firms [investment funds] have figured out the correlations between the various instruments they hold and believe they are hedged. Yet as Chan and others (2005) point out, the lessons of summer 1998 following the default on Russian government debt is that correlations that are zero or negative in normal times can turn overnight to one — a phenomenon they term "phase lock-in." A hedged position can become unhedged at the worst times, inflicting substantial losses on those who mistakenly believe they are protected."

Glossary

 * Bilateral netting: A legally enforceable arrangement between a bank and a counter-party that creates a single legal obligation covering all included individual contracts. This means that a bank's obligation, in the event of the default or insolvency of one of the parties, would be the net sum of all positive and negative fair values of contracts included in the bilateral netting arrangement.

Financial derivative trading companies

 * 🇳🇿🇷🇺🇦🇪🇬🇧Alpari Group
 * 🇨🇾Anyoption