From the course: Derivatives Fundamentals
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Key components of derivative contracts
From the course: Derivatives Fundamentals
Key components of derivative contracts
- [Instructor] So, let's explore the components of a derivative contract. Derivative contracts will generally include these three important components, one, the underlying asset. Two, whether it's a long or short position, and three, the expiration date. Let's touch on each of these in turn. Just a word of note here, though, specific types of derivative contracts will have several other important components other than these three that we'll explore later. Let's start by talking about underlying assets. A derivative contract will derive its value based on the dynamic value of an underlying asset. A few of the most common underlying assets in the derivative markets are stocks, bonds, currencies, commodities, market indexes, or sometimes they're referred to as indices, and interest rates. Next, let's talk about long positions and short positions. In a derivative contract, one party is described as being in a long position while the other is in a short position. If a derivative can be…
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