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An Introduction to Trading in the Financial Markets: Market Basics by R. Tee Williams

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2

Derivative Instruments

Derivatives are instruments that derive their value from the value of another instrument or commodity (see Figure 2.2). Derivatives are created by a contract that obliges the parties involved to take certain actions depending on the terms of the agreement they make. Although derivatives may include bespoke contracts, derivative exchanges have developed to trade standardized contracts that are fungible.

image

Figure 2.2 Derivative instruments are contracts that commit the writer of the contract to perform an act or service to investors or to traders who need the service.

Options

Options are contracts that permit the owner ( ...

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