Can you tell me where to find a list of the different derivatves?
Can you or I trade some derivatives?
Where are their prices listed?
Do some mutual funds invest in derivatives?
Gotta love your attitude Auntie Mame!
“Life is a banquet and some most poor suckers are starveing to death”
You go girl!
From what I understand, you can buy a derivative on almost anything. To buy them, you have to be plugged into the Financial community. While I can trade stocks/bonds online, I don’t have nearly the level of sophistication (or access) to trade derivatives.
So....sorry. Suggest you try someone who works for a hedge fund if you’re really interested.
The term 'derivative' is pretty broad. Everything from a listed option on a stock or a future can be considered a 'derivative' because its value is derived from an underlying asset.
The derivatives as described in this article are primarily Interest Rate Swaps which are traded "Over The Counter" or directly between the two parties. They are not listed on an exchange, nor are they something that individual investors or mutual funds would trade or have any exposure to.
In a vanilla Interest Rate Swap, the 2 parties involved in a transaction are only exchanging fixed interest payments for floating interest payments on an agreed-upon notional. It is not the notional itself that is being exchanged. Please place these huge figures in their proper perspective
For example: 2 parties may engage in a Swap transaction on a $100million notional amount. They are not exchanging the entire $100million. They are only exchanging interest payments on that $100 million on a monthly, quarterly, semi-annual or annual basis (whatever they agree to), so the true exposure is nowhere near the $100 million notional amount of the swap. If a bank on one side of the transaction goes under, the other side hasn't lost $100million or anywhere close to it.
Under Dodd-Frank, banks will be forced to have these products centrally cleared, meaning that each side of a transaction will face a clearing house instead of facing another bank directly. In essence; each bank will have to post collateral based on the value of the derivative contracts to which they have exposure. This collateral will (in theory) protect the counterparties of those transactions if a bank were to default.
The simplest derivatives are options, the basic ones being puts and calls.
A put is a contract which gives the buyer of the put the right to sell a certain asset (e.g. a certain number of shares of XYZ corp., and oz. of gold, . . .) at a fixed price to the seller of the put at any time during the term of the contract (American version) or at the ending date of the contract (British version).
A call is a contract which gives the buyer of the call the right to buy a certain asset at a fixed price from the seller of the call (again at any time ruing the term of the contract or at the ending date of the contract).
A straddle is a contract that combines a put and a call (with different prices) on the same asset.
Puts were traditionally used to hedge downside risk when buying on margin (i.e. on credit), and calls to hedge risk of price rises when short-selling (selling borrowed assets).
Of course there are more exotic derivatives like credit default swaps in which one party pays the other for the right to sell some asset (usually a loan or portfolio of loans) at an agreed to price if some specified bad thing happens. (The “bad thing” is most often the borrower defaulting on the loan, but it could be something else.) The seller of the CDS either believes the bad thing won’t happen, or that even if it does the asset will be worth acquiring at the agreed price, or some probabilistic combination of the two, while the buyer is worried about the bad thing happening and thinks the asset won’t be worth holding onto if it does, and is willing to pay something to hedge against the bad thing happening and being stuck with the asset.
Anyone with a brokerage account can trade in options and maybe more exotic derivatives as well. Generally the only mutual funds that use derivatives much are hedge funds (hence the name).
That’s about all I know on the subject.