Derivatives markets and derivative dealing takes place on regulated exchanges, as well as on off-exchange basis (Over the Counter, or OTC).
The main derivatives are futures, options, swaps, warrants, and convertibles. From the viewpoint of an ordinary investor, these are high-risk financial products with considerable potential for large losses (as well as gains).
The substantial profits (and losses) can be made on a relatively small stake, because the derivatives offer leverage.
In addition to taking a view on the underlying market instrument (whether it is correctly priced or not) derivatives can also be used to reduce the risk (or hedge) of an investment in the underlying instrument.
Markets where derivatives are traded include (according to NUMAweb, a derivatives portal):
- Philadelphia Stock Exchange (phlx.com)
- Chicago Mercantile Exchange (cme.com)
- Chicago Stock Exchange (chicagostockex.com)
- Chicago Board of Trade (cbot.com)
- American Stock Exchange (amex.com)
- Minneapolis Grain Exchange (mgex.com)
- Chicago Board Options Exchange (cboe.com)
- Pacific Stock Exchange, Inc (pacificex.com)
- The Cincinnati Stock Exchange (cincinnatistock.com)
- International Securities Exchange (iseoptions.com)
- New York Board of Trade (nybot.com)
- New York Stock Exchange (nyse.com)
- Nasdaq Stock Market (nasdaq.com)
- Kansas City Board of Trade (kcbt.com)
- Philadelphia Board of Trade
- New York Mercantile Exchange (nymex.com)
Learning About the Different Derivatives Markets
As one of the first steps towards learning about the derivatives markets and dealing in them, you should read information on the various exchanges available. Market rules as well as valuation basics are usually described on the product specifications.
If you have a brokerage client relationship, another good place to learn about the derivatives market is to look for courses and seminars from your brokerage.
Some of these brokerages may allow for simulated trading within their trading platform, allowing you to test your strategies before placing actual money at stake.
Specific educational training companies (also within the exchanges) for derivatives include: