Chapter 1: An Overview of Derivatives

In this section

• What Is a Derivative?
  Discover how derivatives derive their value from underlying assets, the role and purpose of these financial contracts, and examples of Canadian regulations and real-world applications.
• Common Features of All Derivative Instruments
  Explore the universal characteristics that shape how derivative contracts are traded and regulated, focusing on contractual obligations, margin requirements, leverage, liquidity considerations, ongoing costs, and regulatory frameworks.
• Types of Derivative Instruments
  Explore forwards, futures, options, swaps, and specialized derivatives in the Canadian markets, with practical examples, regulatory context, and best practices.
• Key Differences Between Option-Based and Forward-Based Derivatives
  Explore the fundamental distinctions between option-based and forward-based derivatives, including right vs. obligation, payoff profiles, margin requirements, and real-world use cases under Canadian regulatory frameworks.
• Exchange-Traded and Over-the-Counter Derivatives
  Explore key differences, regulatory frameworks, and practical examples of standardized exchange-traded derivatives versus flexible OTC derivative products in Canadian and global markets.
• Key Differences Between Exchange-Traded and Over-the-Counter Derivatives
  This comprehensive article explores critical distinctions between exchange-traded and OTC derivatives, focusing on standardization, clearing mechanisms, liquidity, price discovery, and regulatory oversight under CIRO in Canada.
• Types of Underlying Interests (Commodities, Financials)
  Explore how commodities, financial instruments, currencies, and emerging assets serve as the core foundation of derivatives trading in Canada and globally.
• Why Are Derivatives Useful?
  Discover how derivatives empower market participants with hedging, speculation, arbitrage, liquidity enhancement, and price discovery, and why they have become essential tools in modern finance.
• Operational Considerations
  Understanding the critical back-office functions, IT infrastructure, margin management, and evolving compliance requirements for reliable and efficient derivative operations.
• Who Uses Derivatives and to What Extent Are They Used?
  Learn how commercial producers, institutional investors, financial institutions, hedge funds, and retail traders leverage derivatives, along with the regulatory considerations involved.
• The New CIRO Regulatory Landscape
  Discover how Canada’s new self-regulatory organization, CIRO, streamlines oversight for derivatives and transforms proficiency standards.
• Emerging Asset Classes (ESG and Crypto Derivatives)
  Dive into the dynamic world of ESG and crypto derivatives. Learn how they’re structured, traded, and regulated in Canada and beyond, including real examples and references.
• Technology in Derivatives Trading (Electronic Platforms, Algorithmic Trades)
  Explore how electronic platforms, algorithmic strategies, real-time risk management, and cybersecurity protocols shape today's global derivatives markets.
• Overview of Bourse de Montréal and Other Global Derivatives Exchanges
  A detailed look at the Montreal Exchange and major global derivatives markets, highlighting product offerings, regulatory frameworks, cross-border trading strategies, and best practices for traders.