Financial derivatives contracts are one of the most complex investable instruments. To trade them successfully, market participants should be familiar with each contract’s specific details and intricacies. Trading venues and exchanges have introduced unified guidelines and frameworks that set the standard for the quality, costs, and other detailed information for a particular derivative contract to make it easier. This guide explores the topic of standardization in derivative markets, what benefits it brings, and what it means for investors.
Standardization of derivative contracts streamlines trade facilitation or financial transaction execution through a framework of agreements. Alternatively, it lists the detailed processes needed to ensure the consistent quality of a particular financial offering or transaction.
It covers all market participants in a transaction, including investors, fund managers, brokers, and more. All relevant parties must adhere to the standardization policies and guidelines. Doing so helps ensure that the adequate quality of the particular instrument is maintained.
0:00 Music Intro
3:13 The benefits of standardization
5:20 Over the counter vs exchange traded derivatives
7:58 Futures contracts
9:07 Options contracts
10:14 Final thoughts
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