Welcome to the Financial Pipeline Derivatives Page!

Derivatives are financial securities whose value is derived from another "underlying" financial security. Options, futures, swaps, swaptions, structured notes are all examples of derivative securities. Derivatives can be used hedging, protecting against financial risk, or can be used to speculate on the movement of commodity or security prices, interest rates or the levels of financial indices. The valuation of derivatives makes use of the statistical mathematics of uncertainty, which is very complex.

There has been much controversy recently over derivatives, mostly because politicians, senior executives, regulators and even portfolio managers have limited knowledge of these complex products. The Financial Pipeline has introduced its derivatives page to educate our visitors and other investors on these complex instruments.

A derivative financial product is a contrived instrument, the value of which depends indirectly on the price of a cash instrument. The price of the cash instrument is referred to as the "underlying" price, quite often. Examples of cash instruments include actual shares in a company, physical stocks of commodities, cash foreign exchange, etc.

Why use derivatives and not just cash instruments? Derivatives exist to solve specific positioning, accounting and regulatory problems. These reasons may not be immediately clear to you but they will be after you read all of the derivatives articles on this web site.

To learn more, click on the "Bar of Knowlege".

The Derivatives Page

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