DEFINITION AND MEANING OF DERIVATIVES jeon rwxr-xr-x 3 Friday, July 15, 2011

Filename	DEFINITION AND MEANING OF DERIVATIVES
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Author	jeon
Date and Time	Friday, July 15, 2011
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           In the world of finance (finance), a derivative is a bilateral contract or payment exchange agreement whose value is derived, or derived from the product being "basic reference" or so-called "derivative works" (underlying product); rather than trade or exchange the physical asset, market participants to make an agreement to exchange money, assets or a value disuatu the future with reference to the assets that became fundamental reference.
Derivatives are used by the investment management / portfolio management, corporate and financial institutions and individual investors to manage the positions they have on the risk of the stock and commodity price movements, interest rates, foreign exchange rates "without" affecting the physical position of the reference product (underlying ).There are a lot of financial instruments which can be categorized in groups of derivatives, but the options / futures contracts and swap is commonly known.

Option 
           Options are contracts where one party agrees to pay some compensation to the other party to a "right" (but not the obligation) to buy something or sell something to the other party; as only someone who worried that the price of the stock will go down XXX before he could sell it, then he pays compensation to another person (this is called "sellers" sell option / put option), which agreed to buy the stock thereof at a price specified on the front (the strike price). Buyers use this option to manage the risk of falling value of the sale of stock XXX has, on the other side of the option buyer may use the transaction option to obtain payment for services and may already have a picture that XXX is not the sale value will go down.As opposed to the option is an option to buy or sell so-called call option where the option was granted an option to purchase the option buyer the right to buy the reference asset (underlying asset) at a date agreed with the price of a predetermined or known as the option strike
 
Swap
           Swap is a foreign term whose meaning is "exchange" but the term is also used in Indonesia in general "Swap agreements are two currency exchange transactions through the purchase or sale of cash (spot) with the sale / repurchase the futures are carried out simultaneously with the same bank and at a premium or discount and exchange rates are made and agreed on the date of the transaction.Derivatives can refer to various types of assets such as commodities, stocks or bonds, interest rates, currency exchange rates or indexes (such as stock market index, consumer price index (CPI-Consumer Price Index), or even an index of weather conditions or other derivative ). Display of the said assets may set a price or time of payment.The main usefulness of these derivatives is to transfer the risk or take a risk depends on whether its position as Hedger (actor hedging) or speculators. Diverse range of asset values ​​between the reference and alternative payment produces a variety of derivatives contracts traded on the market. The main types of derivatives are futures contracts (futures) contract, the transfer (forward), options and swaps.

 Insurance and protected indigo 
          One uses derivatives as a tool to transfer risk. For example, farmers can sell futures contracts to the speculators on the crop before harvest. The farmers do hedge the risk of rising or falling crop prices and the speculators receive the transfer of this risk in the hope of great rewards. Sipetani know exactly the value of selling the crop to be obtained later and the speculator will make a profit if prices rise, but if prices decline it will incur a loss.Arbitration or also known as foreign "arbitrage" can be interpreted as an act of taking advantage by exploiting the difference between a reference asset and other reference assets such as by utilizing the difference between the value of LQ-45 index (ILQ-45) on the Jakarta Stock Exchange (spot market) and the value KBIE ILQ-45 on the Surabaya Stock Exchange (futures market), so in addition to taking a position on the BES, also must take a position on the JSE so that simultaneously taking opposite positions between the JSX and SSX.Speculators can trade with other speculators as well with people in need of hedging (Hedger). In general, market transactions derivatives market is more dominated by speculative trading than trading the hedge in a very real sense.