DINEO TSAMELA: The weird and wonderful world of derivatives trading explained
For many traders, dealing in derivatives is out of the question — because these financial instruments can be so complex and risky. Derivatives are securities (or tradable financial assets, which include banknotes and shares) whose prices are derived from an underlying asset, hence the name. Derivatives can track almost any measurable item. Value can be derived from an asset, a specific event or outcome - be it politics, economic expectations or commodities. For instance, contracts for differences - discussed last week - are a form of derivative, because the value of the contract is derived from the underlying share. Most derivatives track familiar assets such as shares, bonds and exchange-traded funds. Institutional investors and companies looking to expand to new regions can use derivatives to manage risk. The JSE has a derivatives market. There are three types of derivatives: • Futures contracts - referred to simply as futures. These are for investors who'd like to hedge their inv...
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