Commodities, Derivatives and Structured Products

Introduction to Derivatives - Part 1 (2021)


This eCourse consists of three modules. Module 1 focuses on the basic types of derivatives – forward-type instruments (forwards, futures, and swaps) and options. The key differences between these instruments are described, along with the basics of their pricing. The module also discusses the uses of these instruments, differences between exchange-traded and OTC instruments, and how derivatives are settled and cleared.

Module 2 covers the most basic derivative building block – the forward transaction – which can take the form of OTC forwards or and exchange-traded futures contracts. The similarities and the differences between these two product types are examined in detail. The module also covers contracts for difference (CFDs), which have similarities to forwards/futures contracts.

Module 3 looks at Contracts for difference (CFDs), a kind of derivatives that has seen an increased participation by hedge funds among others, and how CFDs can be used to take a leveraged positon on an underlying security. Finally, this module describes the advantages and disadvantages of CFDs.


On completion of this course, you will be able to:
- Recall the historical development of the derivatives market
- Identify the key types of derivative, namely futures and options
- Define an interest rate swap
- List the main uses of derivatives, namely, hedging, speculation, and arbitrage
- Recognize how derivatives may use physical or cash settlement
- Compare exchange-traded derivatives to OTC derivatives
- Recognize the importance of clearing arrangements in reducing counterparty risk in derivatives markets
- Identify different types of future exposure such as agricultural, FX, and interest rate exposure, and how such exposure might be hedged
- List the key differences between forwards and futures
- Recognize how forward/future prices are linked to spot through the economics of ownership but are not predictors of actual prices in the future
- Identify some main features of contracts for difference (CFDs)
- Recognize how a CFD works
- Identify the underlying securities used for CFDs
- Illustrate how a CFD can be used to take a leveraged position
- List the various advantages and disadvantages of CFDs

Content Highlight

Module 1: Derivatives - An Introduction
Topic 1: Overview of Derivatives
Topic 2: Types of Derivative
Topic 3: Swaps
Topic 4: Uses of Derivatives
Topic 5: Settlement
Topic 6: Exchange-Traded & OTC Derivatives
Topic 7: Clearing

Module 2: Forwards & Futures - An Introduction
Topic 1: Future Exposures
Topic 2: Forwards vs. Futures
Topic 3: Forward & Future Prices
Topic 4: Contracts for Difference

Module 3: Contracts for Difference (CFDs)
Topic 1: Overview of CFDs
Topic 2: Trading CFDs
Topic 3: Benefits & Downsides to CFDs

Administrative Details

Relevant Subject
Type 2 - Dealing in futures contracts
Type 5 - Advising on futures contracts
SFC:2.00, PWMA:2.00
All Member: HKD570
Non-Member: HKD840
Staff of Corporate Member: HKD570