HOME >

Derivatives Clearing


 A derivative is a type of security, which is a contract between not less than two parties, the trading price of which depends upon at least one underlying asset - hence, its price is derived, not determined directly.

Forward contracts, futures, options and swaps are the most common type of derivatives. The derivatives contracts themselves are what are traded; the contracts give their holders tremendous leverage by way of their having strict control over the underlying assets for a temporary period of time, and with this control they can derive huge profits from just a relatively small investment.

Contrary to what many people would try to have us believe, derivatives are nothing new. As a matter of fact they are first described, to the best of our knowledge, in the writings of none other than Aristotle, in which he tells the tale of a poor philosopher named Thales of Miletus, who made contracts with local olive-press owners.  He deposited the precious little money he had with them and they agreed to give him full control of their presses when the harvest time came.  Thales, at this time, was predicting a bountiful olive harvest come the next autumn, while the press owners took the opposite view and were happy to hedge against a possible money-losing harvest by taking Thales' money up front. In the face of great criticism from his contemporaries, who derided him and said his poverty came from idiocy just such as this, the philosopher invented a "financial device, which involves a principle of universal application...When the olive harvest-time came, and many oil presses were wanted all at once and of a sudden, he let them out at any rate which he pleased, and made a quantity of money. Thus he showed the world that philosophers can easily be rich if they like, but that their ambition is of another sort."

Clearing houses act as third-party facilitators of financial trading between two parties by acting neutrally as both buyer and seller.  With the advent of large amounts of money being put into derivatives over the last 20 years, most players have seen the need for a clearing firm that can pay close attention to derivatives trading facilitation as well as the underlying securities



<< back
EXECUTION

The Kyte Group Limited was founded by David Kyte in 1985 on LIFFE, the embryonic futures exchange in the heart of the City of London.
READ MORE

Kyte's customers are market professionals, either sole traders, teams of market,
READ MORE

Providing clearing and settlement services to professional traders who transact business on the world's leading exchanges.
READ MORE