0
Derivatives are by definition a financial instrument that is made by isolating and packaging some aspect of a commodity or a financial instrument.
The simplest derivative is an "option". Assume that you own 100 shares of ABC Company stock. I believe that the price of ABC stock is going to go up over the next few months. So I pay you a small amount for the right to buy the ABC stock from you at a fixed price on a fixed date in the future. Say that ABC stock is presently valued a $10 a share but I believe it will go up substantially so I pay you $1 a share for the right to buy the stock from you for $15 a share next January 15th.
Now your ABC stock is spilt into two things - the stock itself and the right to sell it after next January 15th (which you keep) and the right to buy the stock from you for $15 between now and January 15th (which is now mine).
What if ABC stock goes up to $30 a share by January 15th. I would "exercise my option" - buy the stock from you for $15 then turn right around an sell it for $30 - making a $14 profit on each share (remember I paid $1 for the option to start with).
But if the stock is worth $15 or less, I wouldn't exercise my option, I would let it lapse - once the option date has passed, the option would cease to exist.
I can transfer my option at any time before it expires. So the derivative is a commodity capable of transfer.
Wiki User
∙ 14y ago
Add your answer:
Earn +20 pts
Where are commodity derivatives traded?
Modern commodity derivatives trading is more appeal to the people outside of the commodities industry. This type of investment has been started since 1848.
What can be expected of a commodity option broker?
One can expect from commodity option broker to receive an advice on derivatives such as option. Moreover, a commodity option broker can use his or her expertise to make the best decision for you for options.
What is commodity tax?
This tax is 0.01 percent and it is assessed when trading non-agriculture commodity derivatives. It has the potential to affect the trading of metals, including gold and silver.
What is the difference between commodity market and normal market?
Normal market ( Equity or Stock Market ) deals with trading of company shares , their and their index derivatives , mutual funds and bonds. Commodity market deals with the derivatives of physical commodities ( Metals , Edibles etc )
What is commodity transaction tax?
This tax is 0.01 percent and it is assessed when trading non-agriculture commodity derivatives. It has the potential to affect the trading of metals, including gold and silver.
What risks are derivatives supposed to manage?
manage such risks relative to interest rates, exchange rates, and financial instrument and commodity prices.
When did the Dubai Gold and Commodities Exchange commence trading as the region's first commodity derivatives exchange?
In November 2005, the Dubai Gold and Commodities Exchange commenced trading. Today it is the leading derivatives exchange in the region, although it started out in the Middle East.
What is a commodity futures trading brokers?
Commodity brokers specializing in futures and options trading offer charts, futures quotes,options prices, news, margin rates and advice. A firm or individual who trades for his own account is called a trader. Commodity contracts include futures, options, and similar financial derivatives.
What has the author Anders B Trolle written?
Anders B. Trolle has written: 'Unspanned stochastic volatility and the pricing of commodity derivatives' -- subject(s): Econometric models, Petroleum industry and trade
What is a derivatives future?
future is a commitment to receive or deliver a specified quantity and quality of a commodity by a specified future date. A future can be used to insure a transaction price at a date prior to the actual exchange.
Where is an expeditions transfer case?
The transfer case is bolted to the back of the transmission on a 4 x 4 capable Ford Expedition
What is the difference between MCX and NCDX?
MCX stand for Multi Commodity Exchange Ltd. NCDEX stand for National Commodity & Derivatives Exchange Ltd. MCX commencement operations on Nov. 2003, NCDEX commencement operations 15 Dec. 2003. In MCX 40 Commodities, when NCDEX numbers of commodities are 59.
