Exchange-traded derivative contracts are standardized

derivative contract In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, Index fund, index, or interest rate, and is often simply called the "underlying". Derivative ...

s such as

futures Futures may mean: Finance *Futures contract, a tradable financial derivatives contract *Futures exchange, a financial market where futures contracts are traded * ''Futures'' (magazine), an American finance magazine Music * ''Futures'' (album), a ...

and

options Option or Options may refer to: Computing *Option key, a key on Apple computer keyboards *Option type, a polymorphic data type in programming languages *Command-line option, an optional parameter to a command *OPTIONS, an HTTP request method ...

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 o ...

. 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 * Cle ...

. 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)