What is derivative market

Definition:

The derivative market is a financial market for derivatives,finacial instruments like future contract or options,which are derived froms of assets.

Participants in derivative market

Participants in a derivative market can be segregated  into four sets based on their trading motives. 

• Hedgers
• Speculators
• Margin traders
• Arbitrageurs

Breaking down Derivative 

Originally,derivatives were used to ensure balanced exchange rates for goods traded internationally. With differing values of national currencies, international traders needed a system to account for these differences . Today, derivatives are based upon a wide variety of transactions and have many more uses. There are even derivatives based on weather data,such as the amount of rain or the number of sunny days in a region.

A speculator who expects the euro to appreciate compared to the dollar could profit by using a derivative that rises in value with euro. When using derivatives to speculate on the price movement of an underlying asset,the investor does not need to have an interest in the underlying asset. 

Next blog we will detailed discuss derivative market