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Derivative instruments

Make investments or hedge risks with futures

A future, or a futures contract, is an agreement which imposes an obligation / gives the right for the customer to buy or to sell a specified asset on a specified future date at a specified price. When buying or selling a future, the customer pays a commission fee to the bank. The amount of the commission fee depends on the futures exchange on which the future is traded and the number of futures contracts traded.

Frequently Asked Questions

Futures give an opportunity to invest in or to hedge against the risks associated with assets which often are not available on the markets in any other form. One of the main advantages of futures is that futures can be used to make a profit on both rising and falling prices. Futures may be used by investors seeking to make a profit on price fluctuations, i.e. to speculate, or by investors seeking to hedge against certain risks, such as the risk of price fluctuations of commodities (grains, oil products, metals). Futures may be used for making a profit on both price increases and price drops. The prices of futures may fluctuate substantially. In the event of unfavorable price developments, the investor may suffer losses. For further information about risks, see the Guide for Transactions in Financial Instruments available on the Swedbank website under "Retail banking" - "Savings and investments" - "Investments" - "Protection of investor interests". All the conditions of futures contracts, except for the price, are standardized - for example, the underlying asset, volume of a single contract, and the last day of trading of the contract. When entering into a futures contract, the customer places collateral with the bank, so that the bank would not suffer a loss in case the customer does not fulfill their obligations under the contract. In order to trade futures, you need to sign the Agreement for Financial Market Transactions and fill out the Complex Financial Instruments questionnaire. Futures contracts allow the making of investments in equity indices, commodities, bonds and other assets. For example, an investor can invest in the German DAX equity index, the US S&P 500 equity index, oil, gold, silver, wheat, copper, nickel, cotton, orange juice, corn, rapeseed and other instruments. Futures contracts can be traded on business days from 09:00 to 17:00 by phone.

Make investments or hedge risks with options

The option contract, or simply option, gives the buyer the right, but not an obligation, to buy ("call" options) or sell ("put" options) an asset on or before a specified date at a specified price ("strike price"). The option seller (writer), in turn, assumes the obligation to buy ("put" options) or sell ("call" options) the specified asset at a specified price within a specified time period. When buying an option, the customer pays a premium and a fee for the execution of the transaction, the amount of which depends on the option exchange where the option is traded and on the number of option contracts traded (for over-the-counter option transactions, the fee is normally agreed on a case by case basis).

Frequently Asked Questions

The option contract gives an opportunity to control somewhat larger positions with a relatively small amount of capital. From the perspective of risk hedging, such a contract may serve as an "insurance policy" against unfavorable asset price movements on the market. Options can be used by investors seeking to make a profit both on price increases and price drops. There are two types of options: The "call" options give the buyer the right to buy a specified asset at a specified price. The "put" options give the buyer the right to sell a specified asset at a specified price. On the other side, the seller of a "call" option assumes the obligation to sell a specified asset at a specified price, whereas the seller of a "put" option assumes the obligation to buy a specified asset at a specified price. "Call" options can be used for making a profit on rising prices. "Put" options, conversely, can be used for making a profit on falling prices. When buying options, the buyer cannot lose more than the price or the premium paid - the maximum amount of potential losses is known in advance. One should also bear in mind that the prices of option contracts may fluctuate substantially - the investor must have a high risk tolerance when making investments in options. For further information about risks, see the Guide for Transactions in Financial instruments available on the Swedbank website under "Retail banking" > "Savings and investments" > "Investments" > "Protection of investor interests". One option contract with equities serving as the underlying asset normally comprises 100 shares. Equity index options may have different contract sizes - for example, one German DAX index option contract comprises 5 index units. Options traded in the over-the-counter market have terms and conditions that are agreed individually at the time of buying the contract, that way allowing investors to find an arrangement that suits them best. In order to trade options, you need to sign the Agreement for Financial Market Transactions and fill out the Complex Financial Instruments questionnaire. The underlying assets of option contracts include equities, equity indexes, foreign exchange and, for example, commodity futures. Option contracts can be traded on business days from 09:00 to 17:00 by phone.

Contacts

Further information about futures contracts is provided in the Guide for Transactions in Financial Instruments, available on - "Protection of investor interests".
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