What is derivative trading?
In short Derivative trading is when traders speculate on the future price of an asset by the buying or selling of derivative contracts with the aim of achieving enhanced gains when compared with buying the underlying asset outright. Derivative trading has grown in popularity since the 1980s, and investors can now trade derivatives on a range of financial markets including stocks, currencies, and commodities.
Traders can also use derivatives for hedging purposes in order to mitigate their risk against an existing position. With derivatives, traders are able to go short and profit from falling asset prices. Therefore, they can use derivatives to hedge against any existing long positions. This is useful for physical commodity exporters who need to mitigate their risks in order to avoid potential financial loses should the global markets of that commodity go negative as the commodity is enroute. Commodity exporters can utilize HootDex as a vehicle to help mitigate their risks.