The article emphasizes the importance of understanding derivatives for anyone entering trading, highlighting the risk of trading without knowledge. Derivatives are contracts based on underlying assets, first noted in ancient Greece and popularized in the 1930s. The derivatives market is expansive, estimated at €660 trillion in Europe as of 2017. The article outlines two major trading methods: over-the-counter and exchange-traded derivatives. It also details futures contracts, explaining their dual role as speculation tools and hedging instruments for companies against price volatility.
Not understanding the market you trade can create various problems, especially when the position goes against you.
A derivative is a contract that derives its value from an underlying asset.
There are two main ways how derivatives are traded: privately over-the-counter (OTC) and exchange-traded derivatives (ETD).
Futures contracts are used as hedging instruments to mitigate risk from price fluctuations.
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