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Derivatives & contracts
Contracts whose value is borrowed from something else’s price.
A derivative has no value of its own. It is an agreement about what someone will pay someone else depending on what happens to a price, a rate, an index, or in some cases the weather.
They exist because risk and ownership can usefully be separated. An airline wants jet fuel price certainty without a tank farm; a pension fund wants thirty years of inflation protection without buying thirty years of anything. Derivatives also let you take positions far larger than your money, which is why they appear in the post-mortem of most financial disasters.
Futures contracts
A standardised, exchange-cleared agreement to trade something at a set price on a set date — the oldest financial derivative…
No. 013Contracts for difference
A bilateral bet on a price move with your broker, leveraged, financed daily, and losing money for the substantial majority o…
No. 023Financial spread betting
A CFD in different legal clothing: a tax-free bet on a price move for UK residents, which is both its main attraction and a …
No. 036Interest rate swaps
An exchange of fixed payments for floating ones, invisible to the public and one of the largest markets on earth by notional…
No. 044Options
The right, but not the obligation, to trade at a set price — which makes the payoff asymmetric and the pricing genuinely dif…
No. 049Prediction markets
Contracts that settle at one or zero depending on whether something happens, turning a probability into a price — and sittin…
No. 065Weather derivatives
Contracts that pay out based on temperature, rainfall or wind, letting businesses hedge the one variable nobody controls.