Derivatives, Structured Financial Instruments
Derivatives, structured financial instruments are instruments (contracts or agreements), the value of which depends on the value changes of the financial instruments or assets associated with the derivative. Most often, selection, forward, futures and other transactions are made, the subject of which is linked to shares, bonds, commodities, precious metals, currencies, interest rates or other goods. Period of these instruments can vary from a few days to several years.
Derivative financial instruments are generally used to hedge against the influence that may be caused by unfavourable developments in the market. For example, if the company plans to pay for the goods to their supplier abroad, by entering into a transaction in advance, it can avoid losses in the future, in the case currency price increases.
- When selecting these instruments, you have the opportunity to invest in those markets where direct investment can be difficult.
- They allow redistribution of the risk of possible adverse change in the price between the lower and higher risk taking market participants.
- With more specific investment knowledge and experience, you can invest for a shorter period to get a faster profit.
Types of derivatives, structured financial instruments
Derivative financial instruments can be traded on both stock exchange and outside it.
Forward is a transaction in which it is agreed that after some time one of the parties will buy and other will sell the subject of the transaction (financial or physical assets) for the price set on the day of transaction. On the date set in the agreement, depending on what is the real price of the underlying asset, one of the parties can make a profit, while the other can suffer loss.
Swap is a transaction in which two parties agree after a certain time to exchange cash flows, which, for example, may depend on the interest rate or exchange rate differences between countries. Typically, such a transaction is intended to hedge against foreign exchange rate, interest rate changes and other risks.
Standardized derivatives - futures and options - are traded on the stock exchange.
Future is a transaction with the same meaning as the already mentioned Forward: the parties undertake at some time in the future to buy or sell a certain amount of financial assets at the price agreed on the transaction date. From the forward transaction, future differs in that it is a standard amount and term transaction, exchange-traded and it has a secondary market, that is futures can be bought or sold in stock exchange before the end of the transaction.
Option is a more complex future transaction in which one of the parties to the transaction at the transaction deadline can choose whether they want to execute the agreed conditions. An option might be both for buying or selling the physical or financial assets at a certain time for a certain price.
Derivative financial instruments provide an opportunity to earn a lot, even from small price changes in the assets to which these instruments are linked. However, in the case of unfavourable situation, especially when borrowed funds are used for investing in derivative financial instruments, losses can also be very high. Due to this risk, investing in derivatives is advisable exclusively for the people who have good awareness of the financial markets.
How transactions are being entered into?
- First of all, in any Šiaulių bankas unit you have to sign a contract for the provision of investment services and open a securities account.
- Transactions can be entered into with the help of Šiaulių bankas’ financial brokers.
Where to go?
The most convenient way is to fill this request form, and required specialist will contact you.
For more information about these investment instruments, conditions and fees call 1813 (+370 37301337 when calling from abroad).
The information contained herein is only a presentational marketing message. It cannot be regarded as an offer to buy any financial instrument, to sell it and (or) to conclude the transaction (s).
Please note that investing involves certain risks, so before making an investment decision, you have to assess that, under certain circumstances, which are independent of Šiaulių bankas AB will and action, your investment value can drop. Šiaulių bankas AB is not responsible for your decisions taken on the basis of the information contained herein.