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Derivatives

This is a general term used to describe financial instruments such as options and futures. These instruments are ‘derived’ from some underlying real or financial asset, hence the term ‘derivative’.

Originally intended to provide hedges against excessive risk, derivatives have become popular with speculators. They are not always well understood and there have been some disasters associated with them (for example, Barings Bank was effectively destroyed by derivatives trader, Nick Leeson).

(See futures, options, traded options, hedging, hedge funds, warrants, contracts for difference, spread bets)

 

 

 

12 April, 2008
 
© 2008 K.R.Wade and Co Ltd