IPO Insight

Origin of Derivatives

Origin of Derivatives

Table of Contents

What is a Derivative?

Derivatives are financial contracts whose value depends on an underlying asset or group of assets. The commonly used assets are stocks, bonds, currencies, commodities and market indices. the worth of the underlying assets keeps changing consistent with market conditions.

Evolution of Derivative Markets

  •  A group of Chicago businessmen formed the Chicago Board of Trade (CBOT) in 1848.
  • The primary intention of the CBOT was to provide a centralized location known in advance for buyers and sellers to negotiate forward contracts.
  • In 1865, the CBOT went one step further and listed the first “exchange traded” derivatives contract in the US; these contracts were called “futures contracts”. Known as Chicago Mercantile Exchange (CME).
  •  CME Group (www.cmegroup.com) is where the world comes to manage risk.
  • CME Group offers the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.
  • The first stock index futures contract was traded at Kansas City Board of Trade.
  • Currently the most popular stock index futures contract in the world is based on S&P 500 index, traded on Chicago Mercantile Exchange.

Derivatives Market in India

  • S&P CNX Nifty Index futures on June 12, 2000.
  • Trading in index options commenced on June 4, 2001
  • Trading in options on individual securities commenced on July 2, 2001.
  • Single stock futures were launched on November 9, 2001.
  • The futures contracts have a maximum of 3-month expiration Cycles.

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Derivatives Analysis

Basic Concept of Derivatives

  • Concept of Risk Management
  • Introduction to Derivatives
  • Origin of Derivatives
  • Types of Derivatives Products
  • Index Derivatives
  • Participant of Derivatives Market
  • Benefits & Limitation
  • Basics of Forward Markets
  • Futures Contract
  • Future vs Forward
  • Application of Futures
  • Option Terminology
  • Futures Pricing
  • Future vs Options
  • Weekly Options & Its Interpretation
  • Binary Options
  • Top Ten Mistakes By Optional Traders
  • Option Pricing
  • Hedge Strategy Using Options
  • Application of Options

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