This sector contains all our financial derivatives jobs, including derivatives jobs for graduates and trainees. This includes derivative sales roles, derivatives analyst jobs, derivatives structuring roles, credit derivatives jobs, equity derivatives jobs, derivatives trading roles, programming roles and other derivatives jobs in London and across the world.
Financial derivatives are effectively contracts between two parties. These contracts state that the value of the derivative in question will be determined by changes to other variables. These variables can be either financial products like equities and bonds, physical products like commodities, or other things – like the weather or the longevity of a population.
Derivatives are frequently used as an insurance policy and hedge against risk. For example, Credit Default Swaps (CDS) specify that in the event of a loan defaulting, the holder of the CDS will receive compensation.
The earliest forms of derivative were futures contracts. These were devised in order that purchasers of materials could have some control over the future price. For example, farmers selling wheat would enter into a contract with wheat buyers to arrange that in three months’ time they would be able to sell wheat at a pre-determined price, thereby insulating themselves against the risk of a collapse in the wheat price during the intervening time period.
Other simple forms of derivative products you may manage in a derivatives career include swaps and options.
Swaps allow for the simple exchange of one type of product with another. Some of the most popular are currency swaps, in which loans and-or the interest payments on those loans are swapped from one currency into another.
Options are contracts which allow one party to buy or sell assets to another party at a specific price at some point in the future. Unlike futures contracts, there is no obligation to invoke an options contract (it’s optional) – a buyer has the right to buy three tonnes of wheat at price X if it makes financial sense, but is not obliged to do so if it doesn’t. Holders of options must pay a premium for this privilege.
Options which confer the right to buy something are ‘call options’. Options which confer the right to sell are, ‘put options.’
Simple derivatives are traded on exchanges. More complex derivatives have traditionally been traded over the counter (OTC), between the two parties involved in the contract. However, this is changing as governments seek to make the derivatives market more transparent.
In the run up to the 2008 financial crisis, derivative products became increasingly complex and increasingly prolific with products such as collateralised debt obligations and synthetic derivatives (derivatives based upon derivatives) proliferating. Many people blame derivative professionals, products, and their falsely conveyed impression that risk was no longer an issue, for the crisis occurring.