Exchange-traded derivative contracts are standardized

derivative contract In finance, a derivative is a contract between a buyer and a seller. The derivative can take various forms, depending on the transaction, but every derivative has the following four elements: # an item (the "underlier") that can or must be bou ...

s such as futures and options contracts that are transacted on an organized

futures exchange A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or ...

. They are standardized and require payment of an initial deposit or

margin Margin may refer to: Physical or graphical edges *Margin (typography), the white space that surrounds the content of a page * Continental margin, the zone of the ocean floor that separates the thin oceanic crust from thick continental crust *Leaf ...

settled through a

clearing house Clearing house or Clearinghouse may refer to: Banking and finance * Clearing house (finance) * Automated clearing house * ACH Network, an electronic network for financial transactions in the U.S. * Bankers' clearing house * Cheque clearing * Cl ...

. Since the contracts are standardized, accurate pricing models are often available. To understand which derivative is being traded, a standardised naming convention has been developed by the exchanges, that shows the expiry month and strike price using special letter codes.

References

{{DEFAULTSORT:Exchange-Traded Derivative Contract Derivatives (finance)