Underlying in the context of "Commodity market"

⭐ In the context of commodity markets, an 'underlying' is considered…

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⭐ Core Definition: Underlying

In finance, a derivative is a contract between a buyer and a seller. The derivative can take various forms, depending on the transaction, but every derivative has the following four elements:

  1. an item (the "underlier") that can or must be bought or sold,
  2. a future act which must occur (such as a sale or purchase of the underlier),
  3. a price at which the future transaction must take place, and
  4. a future date by which the act (such as a purchase or sale) must take place.

A derivative's value depends on the performance of the underlier, which can be a commodity (for example, corn or oil), a financial instrument (e.g. a stock or a bond), a price index, a currency, or an interest rate.

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👉 Underlying 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.

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Underlying in the context of Sustainable Development Goal 1

The Sustainable Development Goal 1 (abbr. SDG 1 or Global Goal 1), one of the 17 Sustainable Development Goals established by the United Nations in 2015, calls for the end of poverty in all forms. The official wording is: "No Poverty". Member countries have pledged to "Leave No One Behind": underlying the goal is a "powerful commitment to leave no one behind and to reach those farthest behind first".

SDG 1 aims to eradicate every form of extreme poverty including the lack of food, clean drinking water, and sanitation. Achieving this goal includes finding solutions to new threats caused by climate change and conflict. SDG 1 focuses not just on people living in poverty, but also on the services people rely on and social policy that either promotes or prevents poverty.

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Underlying in the context of Option (finance)

In finance, an option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option.

Options are typically acquired by purchase, as a form of compensation, or as part of a complex financial transaction. Thus, they are also a form of asset (or contingent liability) and have a valuation that may depend on a complex relationship between underlying asset price, time until expiration, market volatility, the risk-free rate of interest, and the strike price of the option.

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Underlying in the context of Strike price

In finance, the strike price (or exercise price) of an option is a fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity. The strike price may be set by reference to the spot price, which is the market price of the underlying security or commodity on the day an option is taken out. Alternatively, the strike price may be fixed at a discount or premium.

The strike price is a key variable in a derivatives contract between two parties. Where the contract requires delivery of the underlying instrument, the trade will be at the strike price, regardless of the market price of the underlying instrument at that time.

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LINKED FROM (PARENTS)
← Commodity market ← Sustainable Development Goal 1 ← Option (finance) ← Stock option ← Options (finance) ← Strike price
LINKS TO (CHILDREN)
Finance → Contract → Price index → Currency → Interest rate →