Home › Academy › The complete derivatives map

Professional · Lesson 1 of 8

Derivatives: families and markets

6 minute read · By Krishna Avadhani, Vestora Academy · Updated 18 October 2026

A derivative is a contract whose value depends on something else: a share, index, interest rate, currency, commodity, credit event or even the weather. The four building blocks are forwards, futures, options and swaps. Almost everything else is a combination of these.

Derivatives trade on exchanges (standardised, centrally cleared) or over the counter (OTC: privately negotiated, often between banks and companies). The OTC market is far larger by notional value. After the 2008 crisis, G20 reforms pushed many standard OTC derivatives into central clearing and trade reporting.

Notional value is the face amount the contract is based on, not the money at risk. Gross market value (what it would cost to replace contracts) is much smaller, but leverage means losses can still be large.

Key takeaways

  • Four building blocks: forwards, futures, options, swaps.
  • OTC markets are larger; post-2008 reforms added clearing and reporting.
  • Notional is not the same as money at risk.

Check your understanding

1. Which is NOT one of the four basic derivative building blocks?

  • Forwards
  • Swaps
  • Bonds
  • Options
Show the answer

Bonds. Bonds are securities, not derivatives.

2. After 2008, G20 reforms pushed standard OTC derivatives towards...

  • Being banned
  • Central clearing and trade reporting
  • Cash settlement only
  • Retail investors
Show the answer

Central clearing and trade reporting. To reduce hidden counterparty risk.

Go deeper

Practise this in Vestora

Look up real shares, test ideas with paper trading, and track your progress through the course.

Open the app free

General education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.