Day Trading & Forex Forum

free_money

Hi to all,

I have 2 Questions which I hope someone can help me out:

1) What is the main derivatives market that banking institutions use? (Is OTC)

2) Summarise (and if possible asses) how a bank would use derivatives to manage risk.

I hope I can get some positive feedback from intelligent individuals.

Thank you very much!!!

gooseman

gonna have to narrow that down mate

GammaJammer

Ok - well - one quick pointer....

'OTC' isn't the name of a particular market. It stands for 'Over the counter' and means banks and other wholesale institutions trading between themselves, outside the auspices of a regulated exchange.

But as Goose says, that's far too broad a question. It's payrolls day and who the hell has time to type a bloody thesis just because you can't be @rsed to frame your question properly.

What is it you really want to know?

__________________
"That which doesn't kill me makes me stronger"

philhackett

The most effective way of assessing risk is to establish how much insuarbnce will cost to protect your position; currentlu about 100% of the cost 12 months ago.

Better to trade ETF's, especialy Bullion and Oil in anticipation of the event that Colin Powell has warned about on 21/22 January.

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Trading is simple; but it isn't easy!Homer

free_money

Thank you very much for your responses. Sorry for my lack of knowledge on the subject, even though I have read a lot on the literature. I find it difficult to get to grips with.
I would like to know two questions;

What is the main (financial) derivatives markets that banks use to manage their exposure to risk?

and

How do they use this market to manage their risk. I.e. do they use puts, options, cfd's??

Thank you all for helping, I hope these questions can get answered briefly so that I can do further reading after.

GammaJammer

OTC derivatives trading dwarfs the exchange traded market in most cases.

And as for which instruments they use, thats a how long is a piece of string question. They use whatever best fits the purpose at the time. Got linear risk - you need a linear hedge. Got non linear risk - you need a non linear hedge and someone with a pointy head to run it for you. The less linear your risk, the pointier their head needs to be.

Rule of thumb, there you go.

See what happens when you keep asking general questions - you only get general answers. What can you really do with what I've just told you? Nothing.

GJ

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"That which doesn't kill me makes me stronger"

free_money

GJ thanks for that. I know it is very brief but do they use puts and calls or do they use totally different instruments. Linear risk is difficult in practice (so I have read) but does this risk comprise of all total risk (ie. mortgages, credit cards, interest rates, saving accounts, shares etc.) or in particular risk.
How do they actually use financial derivatives to hedge (or manage) their risk

GammaJammer

They use all sort of methods, for all sorts of risk.

Cmon - you're being far too vague. Answers to questions this vague you can get from a book rather than have someone take time to typ them for you.

__________________
"That which doesn't kill me makes me stronger"