Introduction
A derivative is a vital financial instrument. The role of derivatives in financial markets is quite diverse. The market refers to a financial market that primarily deals with futures and options, and the value of the underlying assets defines the value of these instruments. If you understand the working of the derivatives market, you can have a successful career in investment banking.
There are several types of financial markets, and the derivatives market plays a significant role in the same. Let’s understand what derivative markets are and how they drive the economies.
The Derivative Market Participants
Primarily, there are four categories of participants in the derivatives market. These participants define the role of derivatives in financial markets.
- Hedgers:
A person who invests in the financial markets with the primary purpose of reducing the price volatility risk is known as a hedger. If you want to have a career in investment banking, you will have to become good with hedging. When it comes to hedging, derivatives are the most common financial instruments. Because derivatives effectively offset risk with their underlying assets, they are widely used.
- Speculators:
As the name suggests, speculators perform the most common function of the derivatives market: Speculation. Here, the investors purchase a particular financial instrument when he speculates that the value of the specific instrument will rise soon. Speculators are present in all types of financial markets. Speculation is motivated by the prospect of making large profits in the future. A course on derivatives by Imarticus will help you understand the basics of speculation.
- Arbitrageurs:
Arbitrage is a profit-making strategy that involves exploiting or profiting from price volatility in the market. Arbitrageurs profit from price differences in financial instruments such as bonds, derivatives, and similar financial instruments.
- Margin Traders:
Margin is the collateral placed with a counterparty by an investor in a financial instrument to cover the credit risk associated with the investment in the finance industry. All aspects of margin trading will be covered in the certified investment banking operations programme. Imarticus Learning is the provider of this course.
Types of Derivative Contracts
There are different types of derivative contracts that exist. You can take up an investment banking course to understand the nuances of these contracts.
- Options:
Options are derivative contracts in which the buyer is given the right to buy or sell an underlying asset at a set price over a set period. American options can be exercised at any time before the expiration of the option period. On the other hand, European options are only valid for a limited time.
- Futures:
These are standardised contracts in which the holder has the option to buy or sell the underlying asset at a pre-determined price and on a pre-determined date. While the terms were being formulated, the contract had to be carried out as agreed. The contracts are traded on a stock exchange.
- Forwards:
These contracts are similar to futures contracts in that they require the contract to be executed on a specific date. Forwards contracts, on the other hand, because they are over-the-counter products, are unregulated and unconstrained by particular trading rules and regulations. Because such contracts are not standardised, they are traded over the counter rather than on the exchange market.
- Swaps:
In these derivative contracts, there are two parties involved. Swaps undergo over-the-counter trading as they cannot be traded in the exchange markets. Because swaps contracts must be customisable to meet the needs and requirements of both parties involved, they are traded over the counter.
Conclusion
The certified investment banking operations program by Imarticus Learning will cover all the aspects of the derivatives market. Once you enrol in the course, you will be taught the basics, and then the nuances of the subject will be covered. The course is ideal for people who want to have a career in investment banking.
