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The derivatives market is a financial marketplace where derivative contracts, such as options, futures, and swaps, are bought and sold. These markets allow participants to trade based on the future price movements of an underlying asset, such as stocks, commodities, currencies, or interest rates. The derivatives market is divided into two main categories: exchange-traded derivatives (ETDs), which are standardized and traded on formal exchanges, and over-the-counter (OTC) derivatives, which are privately negotiated between parties.
The Chicago Mercantile Exchange (CME) is one of the largest derivatives exchanges in the world, offering futures and options contracts on a wide range of assets.
• Facilitates the trading of derivative contracts like options, futures, and swaps.
• Divided into exchange-traded and over-the-counter markets.
• Used for hedging, speculating, and managing financial risk.
The derivatives market allows participants to hedge risks, manage exposures, and speculate on future price movements of underlying assets.
Exchange-traded derivatives are standardized and traded on formal exchanges, while OTC derivatives are privately negotiated between parties.
Derivatives markets carry risks due to leverage, market volatility, and counterparty risk, especially in OTC transactions.
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