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    Jeez, you times are hard when people can't be bothered to with a google search.
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    (Original post by Heritage Oil)
    There are two main features of options. Calls and Puts. Calls - Long. Puts - Short.

    Also the Fwds 'upper class investors' was a quick reply. Not meant literally.
    What they were trying to say is that there are many types of exotic options, in addition to the two vanilla ones you listed. Examples are digitals, barrier, compound, look-back etc. OPs question was very simple, and you did not answer it. TP already answered the question anyway

    (Original post by Teenage Pirate)
    A derivative is a contract between two or more parties where the value of the derivative depends on the value of another asset.
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    (Original post by Teenage Pirate)
    Wow... this thread is depressing.

    A derivative is a contract between two or more parties where the value of the derivative depends on the value of another asset.
    What derivative class are you thinking of? I was under the impression OTC/Exchange-traded primitive/derivative contracts are always just between a party and a counterparty (i.e. 2 parties, no more)?
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    (Original post by Altruistic1)
    What derivative class are you thinking of? I was under the impression OTC/Exchange-traded primitive/derivative contracts are always just between a party and a counterparty (i.e. 2 parties, no more)?
    The exchange is a third party

    Also wasn't 100% sure but said more than two because I figured there might be some exotics that worked like that.
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    NO it's not.

    Exchange is a DIRECT counter party thus effectively a ' the second ' party to the trade.

    Trader on an exch is legally trading with the exch, he does not know who has taken the other side of his trade, unlike OTCs generally.

    Anything goes wrong, the exch guarantees the contract that's what margins are for.
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    Warren Buffet gives the following definition,

    Derivatives = Financial weapons of mass destruction
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    Step 1: Ask a question on a complicated topic

    Step 2: Get a variety of facts and opinions (some right/some wrong) from a variety of people with unproven credentials

    Step 3: Give up on the "easy option" and give Google another go
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    I am ex derivatives sales trader BZW Singapore.
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    (Original post by Txi)
    NO it's not.

    Exchange is a DIRECT counter party thus effectively a ' the second ' party to the trade.

    Trader on an exch is legally trading with the exch, he does not know who has taken the other side of his trade, unlike OTCs generally.

    Anything goes wrong, the exch guarantees the contract that's what margins are for.
    Correct.

    And for OTC derivative contracts required to be centrally cleared, the original contract will be novated i.e. each of the counterparties will face the clearing house. It's all about credit risk.

    Also it's probably worth noting that the vast vast majority of options, derivatives etc will never be physically settled. Barring commidity futures contracts bought by suppliers, everything will be cash settled. In this case each counterparty will mark-to-market each day based upon the price movement above or below the agreed futures price. E.g. I go long Vodafone futures @ 180p, tomorrow the price rises to 185p by end of day, at 10am the next morning the clearing house collects 5p margin from you and posts the cash flow to me.
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    (Original post by KingKravitz)
    Correct.

    And for OTC derivative contracts required to be centrally cleared, the original contract will be novated i.e. each of the counterparties will face the clearing house. It's all about credit risk.

    Also it's probably worth noting that the vast vast majority of options, derivatives etc will never be physically settled. Barring commidity futures contracts bought by suppliers, everything will be cash settled. In this case each counterparty will mark-to-market each day based upon the price movement above or below the agreed futures price. E.g. I go long Vodafone futures @ 180p, tomorrow the price rises to 185p by end of day, at 10am the next morning the clearing house collects 5p margin from you and posts the cash flow to me.

    OTC registration with isda is minimal and voluntary.

    the wast majority is totally done privately.

    Most of is so customised that M2M becomes a guessing game in itself.

    Swhy we had the crisis of 08.
 
 
 
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