In the financial field, a derivative is a contract that derives its value from the performance of an underlying company. This underlying entity can be an asset, index or interest rate and is often simply referred to as “underlying.” [1] [2] Derivatives may be used for a number of purposes, including price movement insurance (coverage), increased exposure to price movements to speculation, or access to otherwise difficult-to-trade assets or markets. [3] The most common derivatives include forwards, futures, options, swaps and changes in these instruments, such as guaranteed synthetic bonds and credit risk swaps. Most derivatives are traded without a prescription (over-the-counter) or on a stock exchange such as the Chicago Mercantile Exchange, while most insurance contracts have become a separate sector. In the United States, after the 2007-2009 financial crisis, pressure intensified for derivatives to move to equity markets. Derivatives are one of the three main categories of financial instruments, the other two being equity (equities or shares) and debt (i.e. bonds and mortgages). The oldest example of a derivative of history, attested by Aristotle, is supposed to be a contractual transaction of olives, in that of the former Greek philosopher Thales, who made a profit on the stock exchange. [4] The bucket stores banned in 1936 are a more recent historical example. Exchange-traded derivatives (ETDs) are derivatives traded through specialty derivatives exchanges or other exchanges. A derivatives exchange is a market where individuals rely on standardized contracts defined by the stock exchange.

[5] A derivatives exchange acts as an intermediary for all related transactions and takes the initial margin of both parties as collateral. The world`s largest derivatives exchanges (by number of transactions) are the Korea Exchange (a list of futures contracts, Eurex (which lists a wide range of European products such as interest rate and index products) and the CME Group (which consists of the merger of the Chicago Mercantile Exchange with the Chicago Board of Trade in 2007 and the acquisition of the New York Mercantile Exchange in 2008). According to the BIS, total revenue from global derivatives exchanges was $344,000 billion in the fourth quarter of 2005. In December 2007, the Bank for International Settlements[30] reported that “derivatives traded on the stock markets increased by 27% to a record $681 trillion.” [30] A small percentage of global derivatives are traded on the stock markets. These public exchanges set standardized contractual terms. You indicate the premiums or discounts on the contract price. This standardization improves the liquidity of derivatives. An option contract is akin to a futures contract, as it is an agreement between two parties to buy or sell an asset at a price set at a predetermined future date.