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    Hey guys,

    Can anyone give or link me to a really good - from the ground up - definition of derivatives? I'm really struggling to grasp the concept. BTW, this isn't for a job interview or anything, it's for my basic introduction to banking and finance university course, I'm just really struggling to find anywhere that explains it in an easy to understand way.
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    You should own this:

    http://ecx.images-amazon.com/images/I/51fW2sY1xML.jpg

    Everyone should own this.
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    (Original post by The IC Guy)
    You should own this:

    http://ecx.images-amazon.com/images/I/51fW2sY1xML.jpg

    Everyone should own this.
    Hahahaha perhaps, I don't need to know what the term means in depth and certainly not to the extent of a full textbook about the term. I just need a basic understanding of what one is and how it differs from an option.

    Basically, I know it's a financial instrument based upon the value of an underlying asset. Is it like an option were you aim to reduce risk?
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    (Original post by Matty_LUFC)
    Hahahaha perhaps, I don't need to know what the term means in depth and certainly not to the extent of a full textbook about the term. I just need a basic understanding of what one is and how it differs from an option.

    Basically, I know it's a financial instrument based upon the value of an underlying asset. Is it like an option were you aim to reduce risk?
    An option is a derivative

    This website is what I used to use when I had NO idea what a term meant: http://www.investopedia.com/terms/o/option.asp

    People tend to refer to derivatives as swaps, futures and options.

    You should seriously buy that book I posted, it's a decent investment and explains everything from 'the beginning'.
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    An option is a derivative....
    Seriously the obvious place to look is wikipedia or investopedia. A piece of lint lodged in a fat man's belly button would understand this definition.
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    (Original post by Oldboy5745)
    An option is a derivative....
    Seriously the obvious place to look is wikipedia or investopedia. A piece of lint lodged in a fat man's belly button would understand this definition.
    Ok, I understand this a lot more now. I was under the incorrect impression that a derivative was something aside from an option/forward/swap. Cheers kid.
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    (Original post by The IC Guy)
    An option is a derivative

    This website is what I used to use when I had NO idea what a term meant: http://www.investopedia.com/terms/o/option.asp

    People tend to refer to derivatives as swaps, futures and options.

    You should seriously buy that book I posted, it's a decent investment and explains everything from 'the beginning'.
    Cheers, I'll look into it. I'm not really looking to get into IB and since my exam is in a few weeks I'm priortising learning. As you can imagine the major subjects are the global crisis of 2007-2008, bank failures and bank regulation so derivatives play only a small part in the grander scheme of things.
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    If it is about the crisis, you should read about Credit Default Swap (CDS) which are credit derivatives (the underlying is not a stock or interest rate but the credit of a company).
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    Read the book Traders guns and money. He gives a great description at the begining.
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    (Original post by Heritage Oil)
    There are four main types of derivatives and they are based on an underlying asset (e.g. stocks, commodities).

    Options
    There are two types of options Calls & Puts.

    Calls: - Saying the price will go up for that underlying asset in the future.
    Puts: - Saying the price will go down for that underlying asset in the future.

    Futures
    Buying something for the future e.g. Wheat 2011 Jan futures. You pay a price now for wheat to be delivered to you regardless of the price in 2011 using the futures market. Jan means it is for Janauary, it could be March, December futures, that just determines what month.

    This was created to give farmers etc stablility initially.

    Forwards
    Like futures, however more 'upper class' and rich private investors.

    Swaps
    When you swap something in exchange for something else. Most commonly used on interest rates...

    You can exchange a variable rate of interest to a fixed rate of interest for example, so businesses have all their interest caculated in advance.

    If you need any more help, feel free to contact me.
    1. there are american/european options

    2. Forwards, like futures and options, are traded by 3 categories of people, namely hedgers, speculators and arbitrageurs

    3.) Futures are traded on exchange while foward contracts are traded OTC, so they have many different characteristics despite having the same basic function (as to agree to buy/sell an asset at a specific price at a specific time in the future).

    I have never heard of the 'rich people trade forward' thing or it being more 'upper class'.
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    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.

    Everything else you've read on this thread is misleading and/ or plain wrong. Except for that guy who told you go look it on up on Wikipedia. (and yes, there are 3 "main types" of derivatives, with forwards and futures being one type but the rest of that post was just so cringeworthy you're better off disregarding it)
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    lol very simply a derivative is something who's value is "derived" from the underlying asset. i.e equity derivative, credit derivative to name a couple
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    (Original post by Teenage Pirate)
    Everything else you've read on this thread is misleading and/ or plain wrong.
    i haven't seen anything that is wrong.

    i have observed a bit of repetition though.
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    (Original post by Chewwy)
    i haven't seen anything that is wrong.

    i have observed a bit of repetition though.
    Two types of options?

    Fwds being for upper class investors

    but yeah I was a bit harsh, but still most stuff offered on this thread is not very useful... then again a question like this deserves crap answers
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    (Original post by Teenage Pirate)
    Two types of options?

    Fwds being for upper class investors

    but yeah I was a bit harsh, but still most stuff offered on this thread is not very useful... then again a question like this deserves crap answers
    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.
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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.
    Better no reply than a quick reply that is that stupid.
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    (Original post by derivstrader)
    Better no reply than a quick reply that is that stupid.
    Na most of it was useful and a nice intro to the 4 main types.
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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.
    ok, I take my previous post back.
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    Better off browsing investopedia than reading this thread.
 
 
 
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