Spread betting on derivatives
Spread Betting on Derivatives
Derivatives are financial instruments derived from some other asset; rather than trade or exchange the asset itself, traders enter into an agreement to exchange money, assets or some other value at some future date based on the underlying asset. There are many types of financial instruments that fall under the term derivatives, but options/futures and swaps are among the most common. Options are contracts where one party agrees to pay a fee to another for the right (but not the obligation) to buy something from or sell something to the other.
Derivatives can be based on different types of assets such as commodities, equities or bonds, interest rates, exchange rates, or indices (such as a stock market index, consumer price index (CPI)--see inflation derivatives--or even an index of weather conditions). The main use of derivatives is to either remove risk or take on risk depending if one were a hedger or a speculator. The diverse range of potential underlying assets and payoff alternatives leads to a huge range of derivatives contracts available to be traded in the market. The main types of derivatives are futures, forwards, options and swaps. In today's uncertain world, derivatives are increasingly being used to protect assets from drastic fluctuations and at the same time they are being re-engineered to cover all kinds of risk and with this the growth of the derivatives market continues.