Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide
by R. Venkata Subramani
EXCHANGE-TRADED DERIVATIVE CONTRACTS
Exchange-traded derivative contracts are those derivatives instruments that are traded in specialized derivatives exchanges or other exchanges. A derivatives exchange is a market where different counterparties trade standardized contracts which are defined by the respective exchange. A derivatives exchange acts as an intermediary to all related transactions, and takes an initial margin as well as a variation margin from both sides of the trade to act as a guarantee for the performance of the contract. We can say that the counterparty risk is greatly reduced for exchange-traded derivative contracts because the settlement of exchange-traded futures and options is guaranteed by the clearing house associated with the exchange and therefore the clearing house acts as the central counterparty.
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