Derivatives Fundamentals from edX

This introductory course on the topic of derivatives covers the fundamental knowledge you need to know about derivatives. You will learn to differentiate between forward, futures, options, and swaps contracts. You will also work on practical examples in Excel to calculate the profits/losses for each type of contract. By the end of this course, you will have the essential knowledge about derivative contracts required to proceed to more advanced topics, such as derivatives pricing and trading.

This course covers the definition, purpose, and components of each of the four main types of derivatives. You'll look at real-world examples of derivatives on Refinitiv Workspace. Additionally, you'll work on example calculations in Excel to determine the profits/ losses generated from various derivatives.

What's inside

Learning objectives

Upon completing this course, you should be comfortable explaining the differences between the types of derivatives and how they can be used for hedging and speculating purposes. major topics covered in this course include:
Characteristics of derivative contracts
Over-the-counter vs. exchange-traded
Forward contracts
Futures contracts

Initial and maintenance margins
Call and put options
Moneyness (in-the-money, at-the-money, out-of-the-money)
Swap contracts

Upon completing this course, you should be comfortable explaining the differences between the types of derivatives and how they can be used for hedging and speculating purposes. major topics covered in this course include:
Characteristics of derivative contracts
Over-the-counter vs. exchange-traded
Forward contracts
Futures contracts
Initial and maintenance margins
Call and put options
Moneyness (in-the-money, at-the-money, out-of-the-money)
Swap contracts

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Explores forwards, futures, options, and swaps, which are essential instruments for risk management and investment strategies

Uses Excel for practical examples, which allows learners to apply theoretical knowledge to real-world scenarios

Examines real-world examples of derivatives on Refinitiv Workspace, a platform used by finance professionals

Covers hedging and speculating purposes, which are key applications of derivatives in financial markets

Requires learners to have access to Excel, which may require a separate purchase or subscription for some learners

Reviews summary

Clear fundamentals of derivatives

According to learners, this course offers a clear and accessible introduction to derivatives. Students appreciate that it covers the fundamental differences between forwards, futures, options, and swaps. Many highlight the practical examples, particularly in Excel, as very helpful for understanding profit/loss calculations. While praised as a solid starting point for beginners, some reviewers note that it focuses solely on fundamentals and lacks depth on more advanced topics like pricing models or trading strategies. Overall, it is viewed as a strong foundation for further study in finance.

Ideal starting point for those new to the topic.

"As someone new to finance derivatives, this course was the perfect starting point."

"Highly recommended for anyone who needs to build a foundation in derivatives."

"If you're a beginner, this course is tailor-made for you."

Helpful hands-on exercises, especially in Excel.

"The Excel examples were incredibly helpful in seeing how the profit/loss calculations actually work for each derivative type."

"Working through the examples provided really solidified my understanding of the mechanics."

"The practical examples, particularly the Excel exercises, were the highlight for me."

Provides a solid base on core derivative types.

"This course gave me a solid foundation on the different types of derivatives, which is exactly what I needed."

"It covers all the stated objectives very well, giving a good overview of forwards, futures, options, and swaps."

"Perfect for getting a basic understanding of the four main derivative contracts."

Concepts are explained simply and clearly.

"The instructor does a great job of explaining the concepts in a very clear and simple manner."

"Everything was explained very clearly and the course is easy to follow even for someone completely new to derivatives."

"I found the explanations of the different contract types to be very clear and easy to understand."

Focus is on basics, not advanced pricing/trading.

"While excellent for fundamentals, don't expect to learn about complex pricing models or trading strategies here."

"It's a great intro, but definitely only scratches the surface. More advanced topics aren't covered."

"I was hoping for a bit more on pricing or real-world application beyond basic P&L, but it stays strictly fundamental."

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in Derivatives Fundamentals with these activities:

Review Basic Financial Concepts

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Solidify your understanding of core financial principles to better grasp the mechanics and applications of derivatives.

Browse courses on Time Value of Money

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Review key concepts like TVM.
Practice calculating present values.
Familiarize yourself with financial statements.

Chance, D.M. An Introduction to Derivatives and Risk Management

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Explore the risk management applications of derivatives with a book that focuses on practical uses.

View An Introduction to Derivatives and Risk... on Amazon

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Focus on the chapters about risk management.
Study the examples of hedging strategies.
Consider how derivatives can be used in different contexts.

Calculate Profit/Loss Scenarios

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Reinforce your understanding of derivative payoffs by working through various profit/loss scenarios in Excel.

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Set up Excel spreadsheets for each derivative type.
Input different price scenarios and contract terms.
Calculate the resulting profit or loss.
Analyze the impact of different variables.

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Build a Derivatives Comparison Table

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Synthesize your knowledge by creating a table that compares and contrasts the key features of forwards, futures, options, and swaps.

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Identify the key features to compare.
Research the characteristics of each derivative type.
Organize the information into a clear table.
Write a short summary of the key differences.

Explore Derivatives on Refinitiv Workspace

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Deepen your understanding by exploring real-world examples of derivatives contracts on Refinitiv Workspace.

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Access Refinitiv Workspace.
Search for examples of different derivative contracts.
Analyze the contract terms and conditions.
Compare different contracts and their features.

Explain Derivatives to a Friend

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Solidify your understanding by explaining the different types of derivatives and their uses to someone unfamiliar with the topic.

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Prepare a simple explanation of each derivative.
Use real-world examples to illustrate their purpose.
Answer any questions they may have.

Hull, J.C. Options, Futures, and Other Derivatives

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Expand your knowledge of derivatives with a comprehensive textbook that covers both theory and practice.

View Options, Futures, and Other Derivatives on Amazon

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Read the chapters relevant to the course syllabus.
Work through the examples and exercises.
Refer to the book for clarification on complex topics.

Career center

Learners who complete Derivatives Fundamentals will develop knowledge and skills that may be useful to these careers:

Derivatives Trader

A derivatives trader specializes in buying and selling derivative instruments such as futures, options, and swaps to profit from market movements or to hedge risks. This course helps one to understand the fundamental differences between forward, futures, options, and swaps contracts. Understanding the characteristics of derivative contracts, as taught in this course, is crucial for traders to make informed decisions. The 'Derivatives Fundamentals' course can serve as an introduction to the essential knowledge around derivative contracts required to perform optimally. The calculation examples in Excel from the course may prove useful on the job.

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Risk Manager

Risk managers assess and mitigate financial risks for organizations, often using derivatives to hedge against market volatility. This course helps risk managers gain an understanding of the various types of derivatives, including forwards, futures, options, and swaps. The course emphasizes the practical applications of calculating profits and losses from these instruments. A risk manager would benefit from understanding derivatives, as taught in the 'Derivatives Fundamentals' course, and the course's focus on the differences between hedging and speculating.

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Hedge Fund Analyst

Hedge fund analysts evaluate investment opportunities and manage risk within a hedge fund, often utilizing complex strategies involving derivatives. This course helps build a solid foundation in understanding the nature and purpose of different derivative contracts, from forwards to swaps. Learning practical applications in Excel, as the course provides, can directly enhance your analytical abilities to determine the profitability of derivatives. Grasping the difference between over-the-counter versus exchange-traded derivatives as taught in the 'Derivatives Fundamentals' course may aid in asset allocation and risk mitigation strategies.

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Financial Analyst

Financial analysts provide insights and recommendations on investment opportunities, often analyzing the impact of derivatives on financial performance. This course helps one better understand the different types of derivative contracts and their purposes, preparing the analyst to evaluate their impact. The 'Derivatives Fundamentals' course covers not only the characteristics of these contracts but also how to calculate their potential profits and losses, essential knowledge for a financial analyst. Learning about initial and maintenance margins may allow the financial analyst to better understand the risk and reward of derivative investments.

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Portfolio Manager

Portfolio managers construct and manage investment portfolios to achieve specific financial goals for clients, sometimes incorporating derivatives for hedging or speculation. This course helps portfolio managers improve their knowledge of the different types of derivatives available and their potential applications. The focus on real-world examples and practical calculations, found in this course, may strengthen their ability to manage portfolio risk effectively. Understanding the use of derivatives for hedging and speculation, from the 'Derivatives Fundamentals' course, may prove essential to the role.

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Corporate Treasurer

Corporate treasurers manage a company's financial risks and assets, often utilizing derivatives to hedge against currency or interest rate fluctuations. This course helps the treasurer to understand the characteristics of various derivative contracts and their appropriate uses. The practical examples in Excel offered by the course may improve the treasurer's ability to analyze and manage financial risks accurately. By the end of this course, you will have the essential knowledge about derivative contracts needed to perform optimally.

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Securities Analyst

Securities analysts research and analyze securities, including those related to derivatives, to provide investment recommendations. The 'Derivatives Fundamentals' course covers forwards, futures, options, and swaps. This may help the securities analysts understand the characteristics of derivative contracts. The course may serve as an introduction to the essential knowledge about derivative contracts.

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Investment Banker

Investment bankers advise companies on financial transactions, including the use of derivatives for risk management or structured finance. This course helps provide a strong foundation in the core concepts of derivatives. The course covers forwards, futures, options, and swaps. Gaining a clear understanding of these different contract types can give the investment banker a competitive edge. Understanding the definitions, purposes, and components of derivatives contracts, featured in the 'Derivatives Fundamentals' course, may prove useful in the field.

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Quantitative Analyst

Quantitative analysts develop mathematical models and algorithms for pricing and risk management of financial instruments, including derivatives. Quantitative Analysts typically need a master's degree or a PhD. This course may help to understand the fundamental characteristics of the various derivative contracts. The 'Derivatives Fundamentals' course introduces the core concepts from forwards to swaps. This knowledge may improve your ability to model and analyze derivatives effectively.

See salaries and explore the career path for Quantitative Analyst

Financial Consultant

Financial consultants advise individuals and businesses on financial planning and investment strategies, sometimes recommending derivatives for specific purposes. This course helps provide a foundational understanding of what derivatives are and how they function. Learning about the different types of derivative contracts, as taught in this course, may improve your ability to advise clients effectively. The understanding of hedging and speculation, described in the 'Derivatives Fundamentals' course, may prove especially useful when helping clients manage their risk.

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Credit Analyst

Credit analysts assess the creditworthiness of borrowers and evaluate the risk associated with lending, needing to understand how derivatives can impact credit exposure. This course may allow the credit analyst to understand the fundamental principles of derivative contracts and how they are utilized in finance. Topics such as initial and maintenance margins, covered in the 'Derivatives Fundamentals' course, may allow the analyst to better understand the risks of lending to firms that use derivatives heavily.

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Compliance Officer

Compliance officers ensure that financial institutions adhere to regulations and internal policies, requiring a solid understanding of derivative trading practices. This course may equip compliance officers with an understanding of different types of derivative contracts, their uses, and potential risks. Understanding the difference between over-the-counter and exchange-traded derivatives, from the 'Derivatives Fundamentals' course, is crucial for monitoring trading activities and ensuring compliance with regulations.

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Actuary

Actuaries assess and manage financial risks for insurance companies and pension funds, sometimes utilizing derivatives to hedge against market volatility. This course may enable actuaries to understand the basic principles of derivatives and their role in risk management. The 'Derivatives Fundamentals' course will familiarize actuaries with the definitions, purposes, and components of different derivative contracts. The course may serve as an introduction to using derivatives to mitigate financial risks.

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Commercial Lender

Commercial lenders provide loans to businesses, evaluating their financial health and understanding how derivatives usage affects their risk profile. This course may allow commercial lenders to better understand how derivatives are used for hedging and speculating purposes. Topics such as forward contracts and initial and maintenance margins, covered in the 'Derivatives Fundamentals' course, may improve a lender's assessment of a borrower's risk profile.

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Auditor

Auditors examine financial records to ensure accuracy and compliance, needing a basic understanding of how derivatives are accounted for and their impact on financial statements. This course may allow auditors to understand different types of derivative contracts and their basic characteristics. This knowledge may prove useful when reviewing financial statements and assessing the proper accounting treatment of derivatives. The 'Derivatives Fundamentals' course will cover the fundamental knowledge of derivative contracts.

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Derivatives Fundamentals

What's inside

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Reviews summary

Clear fundamentals of derivatives

Activities

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