Derivatives

OTC derivatives are contracts that derive their value from underlying assets such as stocks, bonds, commodities, interest rates, currencies, or credits. Their flexibility and adaptability make OTC significant. In contrast to exchange-traded derivatives, OTC contracts allow parties to customise their agreements for specific purposes. Find out about OTC meaning, how they work, types, advantages, and disadvantages by reading this article.

A derivative is a contract where its value is derived from its underlying asset. The underlying asset can be stock, commodity, bond, currency, etc. In this contract, the buyer agrees to buy the asset on a specific date at a determined price. There are mainly three types of derivative instruments— futures, options and forwards.