Derivative Trading

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Derivative trading makes it possible to transfer risk and to discover fair price by arbitrage mechanism. Consequently, it gives a much benefit to the market and economy growth. Specifically, the introduction of derivatives market and innovation of the products in the derivatives market becomes a standard instrument to risk management. By transferring risk from risk- averse investors to risk-love investors, market participants enable to expand their trading volume, and hence would contribute develop the financial system and the macro economy.

Also, derivatives trading may make a complete the capital market. If, in a market, there is an information asymmetry or market friction, then arbitrage strategies using derivatives give a much opportunity to get profit and hence discover the fair price of product. Therefore it helps to capture the information that is not easily available and hence converge to complete the financial market.

On the other hand, derivatives trading may result in negative consequences. Many finance researchers investigate the following topic: (1) Does futures and/...

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