Page 11 - Futures Money Machine-Study Session #1

Are “Futures” the same as “Derivatives”?

“Futures” represents two parties that agree in a futures contract to buy a tangible
or intangible product or asset at a specified price and on a specified future date.
Both parties are obligated to carry out the contract.

“Derivatives” are contracts whose value derives from something else. Like the
variation of a commodity price against a stock market index.

Technically speaking, a futures contract is a derivative.

An option is a derivative contract where a seller offers a buyer the right, but not
an obligation as in the case of futures, to buy an asset.

A “Swap” is a derivative contract where two parties exchange cash flows, such as
interest rate payments. The interest rate calculations are agreed and the two
sides are obligated to the deal. There are also combinations of swaps and options
called "swaptions.“ In 2006, CME purchased "Swapstream", an interest rate swaps
electronic trading platform, based in London.