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Introduction to the derivatives market

 

The derivatives market has been established and developed for hundreds of years in the world. Products in the derivatives market are financial instruments which are valued based on the value of one or more underlying assets, expressed in a variety of contractual forms, This regulates rights and obligations of parties to payment in cash and underlying assets transfer at an agreed upon pricein the future. There are two types of underlying asset namely non-financial assets (food, energy ...) and financial assets (stocks, bonds, interest rates, exchange rates, derivative securities). In terms of contracts, derivatives have four basic types of contracts: forward contracts, futures contracts, option contracts and swap contracts.

Based on international experience, reality of Vietnamese market, and the goal of building a fair, efficient, transparent market to minimize systematic risk and protect investors, futures contracts on the VN30 index and Government bond futures contracts are designed to be the first derivative products in Vietnamese derivatives market. The contents about underlying assets, trading method, trading time, clearing method and payment ... in futures contracts have been standardized by the regulator. These futures contracts are listed and traded on the Hanoi Stock Exchange.

Publishing determination of price, trading volume and value helps the market transparent and liquidity increasing. Transactions of futures contracts on the Exchange are cleared and settled through the Vietnam Securities Depository under the model of CCP (central counterparty). In case one party (buyer or seller) cannot make payment, the CCP will guarantee payment for the other party. This is an advantage of standardized derivative securities listed and traded on the Stock Exchange. In addition, futures contracts also promote the liquidity of underlying assets and stock markets.

For investors, futures contracts help diversify investment instruments and implement effective hedging risk strategies for price fluctuation of underlying asset. On the management side, futures contracts meet the need to diversify investment products of the public, reform financial market structure including capital mobilization market and risk diversification market, thereby promoting international integration of Vietnam.