Which derivatives are exchange-traded?

Which derivatives are exchange-traded?

• A. Forwards and swaps
• B. Futures and most standardised options
• C. Exchange-traded derivatives
• D. Physical markets

Answer: (B)

Exchange-traded means the contracts are standardized, listed on a formal exchange, and cleared through a central counterpart. Futures fit this because they have fixed contract sizes, set expiries, standard terms, and are traded on futures exchanges with daily settlement and margin requirements. The same idea applies to most standardized options, which have fixed strike prices and expiries and are traded on options exchanges with clearinghouse guarantees. In contrast, forwards and swaps are typically over-the-counter—negotiated directly between parties with customized terms and no central exchange or standard clearing. Physical markets involve the actual delivery of the underlying asset today, not a derivative contract.

Exchange-traded means the contracts are standardized, listed on a formal exchange, and cleared through a central counterpart. Futures fit this because they have fixed contract sizes, set expiries, standard terms, and are traded on futures exchanges with daily settlement and margin requirements. The same idea applies to most standardized options, which have fixed strike prices and expiries and are traded on options exchanges with clearinghouse guarantees.

In contrast, forwards and swaps are typically over-the-counter—negotiated directly between parties with customized terms and no central exchange or standard clearing. Physical markets involve the actual delivery of the underlying asset today, not a derivative contract.