Know Your Rights!!

Derivative instrument is one whose principal source of value depends on the value of something else, such as an underlying asset, reference rate or index. First and foremost, a derivatives instrument is a contract, or agreement, between two counter parties. Unlike many market transactions where ownership of an underlying asset is immediately transferred from the seller to the buyer, a derivatives transaction involves no actual transfer of ownership of the underlying asset at the time the contract is initiated. Instead, a derivative contract simply represents a promise, or an agreement, to transfer ownership of the underlying asset at a specific price and time specified in the contract. The counter party that contracts to buy is said to have established a long position. A counter party that contracts to sell is said to have established a short position. Because of the bilateral nature of derivative contract, the value of contract depends not only on the value of its underlying asset but...