Over the Counter Derivative Instruments

QNB Finansinvest is able to bring parties together by acting as a market maker, assume an intermediary role by finding the counter party that can meet the requirement of a customer, or close a transaction reciprocally performed on their original portfolio with a customer by taking a reverse position on the same original portfolio with another counter party or the customer itself.

AN OVERVIEW OF OVER-THE-COUNTER DERIVATIVE TRANSACTIONS

Over-the-Counter Market: The reciprocal transactions with financial institutions engaged in intermediary activities in capital markets outside organized stock markets are referred to as “Over-the-Counter Market".

Derivative Products are based on the derivative of another security; i.e., they are derived from the return of another security. Utilized for hedging or to increase returns by taking risks at a certain level, these products are most distinct in terms of having time value and variability values due to the price fluctuations in the spot markets. Primary derivative products include Forward, Swap, Futures, Option and structured products. The biggest risk all derivative products commonly pose is the risk of capital loss.

OPTION TRANSACTIONS

Option contracts grant the buyer the right to buy and sell an economic or financial indicator, capital market instrument, goods, precious metal or foreign currency at a certain price, quantity and quality within or until a certain maturity, while rendering the seller liable.

Option contracts are traded in over-the-counter markets, in addition to being traded in organized stock exchanges. The features of over-the-counter option contracts are not standardized; they are rather determined mutually between the buyer and seller.

Option contracts are sold against a certain fee. This fee is called a “premium”. The investor may either yield profits or suffer losses depending on the increase or decline in the option premium traded in the market.

In the event of buying an option contract, the value of the right represented by the contract purchased may decrease to zero. In this case, the entire premium having been invested is lost. The potential loss risk is unlimited in some option contracts. Therefore, it is critical to receive support from experts when trading over-the-counter derivative products which pose a high risk degree.

 

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