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CONCEPT OF DERIVATIVES - Coggle Diagram
CONCEPT OF DERIVATIVES
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Types of derivatives
Forward
An agreement to buy and sell specified securities at a specified price and delivered at the maturity date in the future.
Futures
An agreement to buy or sell an asset between two parties at a certain time and certain price.
Option
A contract that giving the buyer the right but not the obligation to buy or sell an underlying asset at a specified date and specified price.
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Major Participants
Hedgers
- It is a underlying commodity owner that use derivative instruments to protect their risk exposure in the cash market.
- It is possible because of the economic function of a derivative market to provide a hedging mechanism for hedgers.
- To managing unfavorable price movement, hedgers will use derivative market.
Speculators
- The traders who are attracted in making profit from the volatility price.
- Exposed to high risk because as a long term traders who normally hold derivative contacts for more than one week.
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Origin & Growth of Derivative Trading
- Originated formally from forward transaction.
- Since prices were settled at the time the agreement was reached, both buyers & sellers are protected against adverse price movements.
The Structure and Development of The Derivative Market in Malaysia
- Ministry of Finance (the controller)
- Securities Commission (the regulator)
- Bursa Malaysia Derivative Berhad (BMDB) (the operator of exchange)
- Bursa Malaysia Derivative Clearing (the clearing house)