Articles on Derivatives

What are Derivatives ?

This article provides a brief introduction to derivatives. It explains what the defining characteristic of derivatives are and how they affect the investor.

The Need for Derivatives

This article explains the need for derivatives in the financial markets. It lists down the four main purposes which form the basis of the majority of derivative trading worldwide.

History of Derivatives

This article traces the history of the derivative market. It starts from the ancient world, outlines the growth of Chicago Board of Trade and ends with the modern day state of affairs.

The 4 Basic Types of Derivatives

This article explains the 4 basic types of derivatives. It also explains the differences between forwards, futures, options and swaps and lists down the pros and cons of using each.

Risks Involved in Derivative Contracts

This article lists down the risks pertaining to derivatives. It also explains each of them in detail and also touches upon famous examples where these risks became a reality.

Commonly Used Terms in Derivative Market

The article introduces the readers to some of the basic terms used in derivatives trading. Detailed explanation is provided about the importance of each of these terms.

Exchange Traded Derivatives

This article explains the basics of exchange traded derivatives. It also explains the key defining features and why exchange traded derivatives are comparatively safer bets.

Margin Mechanism in Exchange Traded Derivatives

This article explains the margin mechanism that is used in exchange traded derivatives. It also explains terms such as initial margin, variation margin, margin call etc.

Examples of Exchange Traded Derivatives

This article lists down the various types of exchange traded derivatives. It also explains the characteristics of each type based on the underlying asset.

Securitization: The Making of an Exchange Traded Derivative

This article explains the process of securitization. It explains how something as illiquid as real estate could be listed, bought and sold on the stock exchange.

Notional Value: Derivatives Markets

This article provides an understanding of the concept of notional value of derivative contracts. It also helps understand how the notional value of derivative contracts put together can be greater than all the money in the world!

Over the Counter Derivatives Regulation

This article provides information regarding the history of non regulation in over the counter derivatives markets. It also provides information regarding the recent efforts for regulation.

Financial and Economic Models used in the Equity and Currency Markets

This article examines the technology and software driven trading systems that are based on economic and financial models and are used in the stock, currency, and other financial markets. The article makes a case for more human control over the trading systems as the theme of machines not yet being “intelligent enough” means that in times of crises and market crashes, there is nothing better than having humans in charge rather than letting machines run amok.

An Introduction to Hedge Funds

This article explains the concept of a hedge fund. It also explains the introduction, rise as well as the decline of the hedge funds. The failure of LTCM as well as the connection of the hedge funds to the subprime mortgage crisis has been mentioned in this article.

How Hedge Funds Makes Money ?

This article lists the various fees that hedge funds charge their clients. It also explains the meaning of each fee and under which circumstances can it be charged to the investors.

Types of Hedge Funds

This article lists down the different types of hedge funds that are present in the market. It also explains the difference between them and gives pointers with regards to choosing amongst them.

Why Hedge Funds Fail ?

This article explores the non financial reasons behind the fall of hedge funds. It explains why hedge funds are inherently unstable organizations and how they can be made more stable.

Hedge Funds vs. Mutual Funds

This article contrasts a hedge fund with a mutual fund. It explains the advantages and disadvantages that accrue to both types of funds.

Hedge Funds and Money Laundering

This article lists down the symptoms which are characteristic of people who want to launder their money via hedge funds. It explains how hedge funds can identify such people and avoid taking money from them.

Hedge Funds and Regulations

This article lists down the regulations that hedge funds generally avoid. It also weighs the pros and cons of introducing regulations in to the hedge funds business.

Hedge Funds and Conflict Of Interest

This article lists down some of the classic conflict of interest scenarios that are faced by hedge funds. It also explains about the fiduciary duties that such funds have towards their clients.

Hedge Funds and Leverage

This article explains the various ways in which hedge funds create leverage. It also explains why huge amounts of leverage are an acceptable norm in the hedge fund industry.

Structuring a Hedge Fund Business

This article lists the wide variety of corporate entities that are used by hedge funds to minimize their tax liabilities. It explains the pros and cons of each structure.

Vulture Funds: The Name Says It All

This article explains the concept of vulture funds. It also lists down the strategies used by such funds. Also, the article provides a critique of vulture funds.

What is Prime Brokerage ?

This article explains the concept of a prime brokerage. It traces the history of the prime brokerage, lists down the services provided by it as well as explains how hedge funds usually select one.

What is Algorithmic Trading ?

This article explains the concept of algorithmic trading systems and high frequency trading. It explains how it affects the common man and an example of the famous flash crash has also been included in this article.

Extrapolation: The Root Cause behind the Bubbles

This article explains why extrapolation is an incorrect approach when it comes to investing in the stock markets. It explains the creation and manifestation of economic bubbles and how thy relate to extrapolation.

Are Debt Funds Better Than Bank Deposits?

This article explains how debt funds work. It also explains the advantages and disadvantages of debt funds. The comparison is done to enable investors to make better decisions.

Why Do Mutual Funds Lend To Promoters?

This article explains how mutual fund houses lend money to promoters. It has explained the modus- operandi used to make such loans. It also lists the reasons which make these loans riskier.

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