An exchange traded derivative is a financial contract that is listed and trades on a regulated exchange. Simply put, these are derivatives that are traded in a regulated fashion. Exchange traded derivatives have become increasingly popular because of the advantages they have over over-the-counter (OTC) derivatives, such as standardization, liquidity, and elimination of default risk. Futures and options are two of the most popular exchange traded derivatives. Exchange traded derivatives can be used to hedge exposure or speculate on a wide range of financial assets like commodities, equities, currencies, and even interest rates.
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