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Amwelladmin (talk | contribs) (Created page with "A fundamental principle of derivatives trading is that, by entering a Transaction, you forever change your exposure from ''not'' having the risk to ''having'' the risk. What that risk may ''be'' at any moment, before it has crystallised into a payment one way or another, may be hard to know. It is the nature of financial exposures that change in unpredictable and maddening ways. But once you have traded a position, the risk of the position may change, but the fact that y...") |
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A fundamental principle of derivatives trading is that, by entering a Transaction, you forever change your exposure from '' | {{drop|[[Replacement cost|A]]| fundamental principle}} of derivatives trading is that, by entering a {{isdaprov|Transaction}}, you forever change your ''exposure'' to the risk it represents. You go from ''off''-risk to ''on''-risk, or ''vice versa''. How to value that risk between times may be hard to know until it finally crystallises, under its terms, into a “settlement obligation” — whereupon you must make or receive delivery or payment of some kind. | ||
By nature, financial risks fluctuate in unpredictable and maddening ways. But while the value of your risk position, once traded, may change, the fact that you ''have'' the risk position does not. | |||
This might seem trite, but it is often misunderstood, especially when further down the line, something prevents ''settlement''. | This might seem trite, but it is often misunderstood, especially when further down the line, something prevents ''settlement''. |