Derivatives Trading Systems

A derivative is a contract that bears its name because its value is derived from various performance aspects of a particular asset or investment instrument (i.e. – interest rates, overall value, and volatilities). Most derivatives derive their value from cash market investments like bonds, stocks, commodities, and money market instruments. Derivatives trading is usually less riskier than other types of trading, as derivatives are ideal short-term investments, and offer a plethora of options for optimal flexibility and variety in terms of the selection of value-determining assets. In basic terms, derivatives are simply contracts that derive their value from an underlying asset, and are commonly used for hedging, speculation, and arbitrage. With so many complexities in the derivatives exchange market, derivatives trading systems have become imperative for the professional trader.

What Are Derivatives Trading Systems?
Derivative trading systems are software or suites containing several applications that allow corporate/financial institutions and individual traders to conduct detailed analysis, market research, and strategy development related to derivatives trading. It is important to note that there are several types of software that can be incorporated into derivatives trading systems, the most popular of which are options and futures software. Another important type of software used within derivatives trading systems is spread trading software, which is responsible for tracking the historical performance of various spreads and detecting current trading opportunities. Other derivatives trading software are specifically designed to aid in the research and analysis of COT (Commitment of Traders) reports. The following paragraphs discuss the two most popular types of software that are incorporated into derivatives trading systems today – options trading software and futures trading software.

What is Options Trading Software?
Options trading software are usually provided in the form of online interfaces by third-party vendors and options brokers. While some options trading software focuses solely on finding ephemeral opportunities, others aid in the process of developing successful investment strategies. Surprisingly, the most effective options trading software used in derivatives trading systems are usually provided by option brokers to their clients at no additional charge, and these software solutions are typically more powerful than standalone systems that have to be purchased individually. The main job of an options trading software is to ensure that options are properly priced using theoretical pricing models. Some options trading software also recommend specific investment strategies for each unique situation. These software usually include modules that can calculate the various probabilities and outcomes of each investment.

What is Futures Trading Software?
Most futures trading software are specifically designed to facilitate the process of tracking and charting various commodities, which are the value determining assets associated with futures contracts. Futures trading software that are incorporated into derivatives trading systems are responsible for charting and analyzing recent and current market data, and forecasting possible future price fluctuations for a plethora of commodities simultaneously. In general, the most effective futures trading software utilize a long list of data feeds that offer proven accuracy and provide advanced indicators and recommendations based on real-time statistics.

Other Options for Derivatives Trading Systems
Aside from futures, options, and spread trading software, there are also all-inclusive professional grade derivatives trading systems available on the market. Although these solutions are typically more expensive and require a much longer learning curve, they offer the most robust solution for trading even the most complex derivatives. Unfortunately, due to the high cost and complex nature of these powerful software, most investors are unable to afford and/or utilize these solutions, and they are instead reserved for established institutions and organizations like banks, financial advisors, and hedge funds.

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