Derivatives,futures & options.

WHAT ARE COMMODITIES/FUTURES

Todays Commodities include a much broader spectrum then the sylvan products that started it all and play a much larger graphic symbol in the economy. A commodity is any item that is bought and sell on an exchange. Price is subject to supply and demand factors so risk is involved. Actually risk is what started the exchange trading of the washbasinonical agricultural products. A farmer who plants a crop, bread & ampere; feed livestock, risks the cost of producing a product ready for commercialise at sometime in the future. Feedlot operators risk legal injury price of metals, large corporations risk currency exchange rates on international contracts. Large Investment banks and brokerage houses have risk in inventories of bonds. Mutual funds have large positions in stocks. With futures trading on the exchanges this risk of future price can be offset to the speculator. The speculator, in effect, pays the farmer, the herder, or mine proprietor for the right to assume the risk. Why, the speculator endeavors to make a profit. The harbor of trading in commodities is therefore tied in with the gather of crops, the marketing of industrial products, livestock and the related cost of storage. implicit in(p) price risks argon the primary reasons for the establishment of the futures contract.

DERIVATIVES

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WHAT ARE DERIVATIVES

The vernacular textbook definition given for derivatives is something like, instruments derived from securities or physical markets. Derivatives atomic number 18 usually contracts, not assets. So the action of shorting is merely that of seated on one side of a contractual pledge that 9 times out of 10 will be settled with a mere cash exchange.

The most general types of derivatives that ordinary investors are likely to come across are futures, options, warrants and convertible bonds. Beyond this, the derivatives range is only limited by the...

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