Derivates

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that the Options derivative has arisen. As we know options are contractual arrangements giving the owner the right, but not the obligation, to buy or sell something at a given price, at some time in the future. It is these Options in general that we want to address as they offer the investor the ability to create a wide variety of risk and return alternatives from the same underlying security. Futures, being exchanged-traded forward contracts, have also provided another choice to suit the needs of the holder and the advantages for and against these will also be looked at.
After looking at the Futures and Options we will turn our attention to discussing the cases for and against the needs of further regulating this market. This issue has been strongly reinforced since many big bets have gone wrong, such as the collapse of Barings and many others. Where do the faults lie which have led to these disasters and who if anybody is to blame? These are matters that will need to be looked at. ...

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House system guarantees that all contracts will be fulfilled.
- Risk of default is very low and the absence of some risk along with the presence of low transaction costs, ensures that the secondary market is highly liquid (i.e. A contract can be opened in one countries exchange and closed in another such is the high quality of the futures market.)
- Offers a cash efficient means of taking position in a market as futures are traded on margin. This allows for a geared exposure to equity or interest rate risk.
- You have simplified credit risk due to this margining system
- Both the trader and investor have the ability to take a short position in the underlying security (i.e. sell ...

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