Exchange-traded derivative contracts are standardized derivative contracts such as futures and options contracts that are transacted on an organized futures exchange. They are standardized and require payment of an initial deposit or margin settled through a clearing house. Since the contracts are standardized, accurate pricing models are often available. To understand which derivative is being traded, a standardised naming convention has been developed by the exchanges, that shows the expiry month and strike price using special letter codes.
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👉 Exchange-traded derivative contract in the context of Commodity market
A commodity market is a market that trades in the primary economic sector rather than manufactured products. The primary sector includes agricultural products, energy products, and metals. Soft commodities may be perishable and harvested, while hard commodities are usually mined, such as gold and oil. Futures contracts are the oldest way of investing in commodities. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodities market for centuries for price risk management.
A financial derivative is a financial instrument whose value is derived from a commodity termed an underlier. Derivatives are either exchange-traded or over-the-counter (OTC). An increasing number of derivatives are traded via clearing houses some with central counterparty clearing, which provide clearing and settlement services on a futures exchange, as well as off-exchange in the OTC market.