“The upcoming launch of the Derivates Market will be a significant milestone in the growth and deepening of our capital markets and the wider Kenyan economy. Derivatives Markets provide new opportunities to investors, enabling them to better diversify their portfolios and allow for the efficient deployment of capital. Furthermore, through the Derivatives Market, investors will be able to form expectations about underlying assets in order to the price risks.”
A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset.
The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes. These assets are commonly purchased through brokerages.
Derivatives can be used to hedge a position, speculate on the directional movement of an underlying asset, or give leverage to holdings. Their value comes from the fluctuations of the values of the underlying asset.
Exchange-traded derivatives like futures or stock options are standardized and eliminate or reduce many of the risks of over-the-counter derivatives.