5 different kinds of equity derivatives
April 28, 2017
Retail investors can use equity derivatives as a form of security when participating in price actions. The security of an equity derivative will also determine in part its value. So learning about equity derivatives can be an essential thing for many different kinds of investors. These are the five most common types of equity derivatives that you will encounter. If you want to learn more as an investor, you will have to be quite aware of what these different kinds of equity derivatives are.
- Single Stock Futures
A future equity derivative relies on a contract between the buyer and seller of an underlying security. The buyer has to agree to purchase the option at a specific time and date in the future. So this means that Futures equity derivative is essentially a contract, one that is made ahead of time between two parties, the seller, and the buyer.
- Stock options
Stock options are a form of contract which allows a trader to trade various kinds of stocks. Unlike Futures, an option does not automatically mean that the investor has to purchase or trade a stock in the future. The buyer is not obligated to purchase the underlying security when they purchase a stock option.
- Convertible bonds
Investors may also get convertible bonds. These types of equity derivatives can be converted into equity with the company that it is related with. While it still has a maturity date, just like a Futures bond, it is a more secure option. It is considered a more secure option because it has got more options for the investor. There are various other types of convertible bonds as well, so if you are planning to invest in this kind of derivative you will need to learn about exchangeable, contingent, hybrid bonds and more.
- Stock Warrants
This type of equity derivative can be called a right to purchase a stock during a predetermined amount of time. However, it is the company that issues stock warrants rather than an investor. This means that the investor is not obligated to purchase the stock option, they simply have the right to purchase it at a set time.
- Index Return Swaps
The cash flow coming from investments in different assets will be exchanged instead of the stock or assets themselves. This type of equity derivative is called Swaps. This use of swaps can give an investor the same kind of cash flow that they can receive when they get returns on their other investments.
If you want to learn more about equity derivatives it can be a good idea to search for training. You can usually find training about equity derivatives and other kinds of financial trading on the internet. Learning about these through online courses could be a great way for you to get into equity derivatives and trading in general. You can find equity derivatives training services quite easily on the internet. And many websites will offer very thorough training if you need it. So when you want to learn about commodities and equity derivatives, look no further than online training. You will get very effective training that will teach you all you need to know about equity derivatives and more.