Stocks, bonds, Forex and cryptos are some of the most known trading classes where the majority of traders make money. However, financial markets are massive and include some less-known assets that can generate a stable stream of income.
Exchange-traded derivatives, or ETDs, are an example of these assets, offering several advantages over more popular markets, like stability and predictability.
What are ETDs? And what makes them safer than other trading options? We will explain all that and more in the following.
Understanding Exchange-Traded Derivatives
ETDs are derivative contracts between two or more parties involving tradable assets in financial markets. The value of these contracts fluctuates depending on the prices of the assets in question.
The assets in the ETD contract are traded in secondary marketplaces and may include stocks, bonds, currencies and other instruments. ETD can be futures contracts, option contracts and futures options.
Advantages of Exchange-Traded Derivatives
ETDs provide distinguished market trading advantages, such as increased liquidity and ease of use. Other features include the following.
ETDs are highly controlled and overseen by regulatory entities that set the standards for ETD trading. Thus, each contract must be approved by authorities like the Securities and Exchange Board for the stated terms and conditions and rights of involved parties.
Moreover, traded products are clearly defined in the contract, and traders can clearly understand and follow up with their investment rather than researching the whole market.
ETDs are highly liquid because they are tied to the securities performances in their respective markets. Moreover, the financial institution or firm offering the ETD takes the counterpart of the trade, giving you access to high liquidity.
Enhanced Agreement Protection
Governmental institutions that regulate the market issue and guarantee these derivatives contracts. Therefore, there are fewer risks associated with trading ETDs and higher predictability.
ETDs are a great trading option that provides stability and predictability. The financial contracts may include stocks, bonds, Forex currencies or other tradable securities approved by local regulators.
These contracts are standardised and regulated by governmental bodies, ensuring security and safety from bankruptcy or default risk.