First Investment Bank

Derivative instruments are financial instruments based on a certain asset (security, market index, commodity or other financial instrument, incl. other derivative asset) called the underlying asset. Characteristic feature of these instruments is that the timing of delivery of the underlying asset is remote in time from the timing of contracting the transaction.

The most common derivative instruments are:

• Futures contracts (futures) is a standardized exchange-traded derivative instrument which requires the buyer to purchase (the seller to sell) a certain asset or a financial instrument at a particular future date and price. Parameters of futures contracts are standardized to facilitate their trade in futures markets. Futures contracts on raw materials are usually with actual delivery of the asset, while those on financial instruments are settled with cash payments. It is typical for trading in futures contracts that they are used to hedge changes in the price of the underlying asset, and purely speculative;
• Unlike the futures contract, the option gives the right but not the obligation of its holder to buy / sell an asset at a specified price during certain period of time. It is used for speculative purposes and to hedge positions. The price of the option is most strongly influenced by its time to maturity and the price of the underlying asset;
• Warrant is a financial instrument that entitles its holder to subscribe for securities until a certain future date at a predetermined price. At the time of issuing the warrant, the current price is usually higher than the price of exercise. Unlike options, warrants have much longer live and are issued by the companies themselves;
• Forward contract is a non-standardized agreement between two parties respectively to buy or sell a certain asset at a specified future date at a pre-agreed price. Forward contract, unlike futures contracts, is not traded on the stock exchange and the parameters of the contract between the two parties are not standardized. With this type of instruments each party is exposed to the credit risk of the counterparty under the contract;
• Swap is a derivative financial instrument and represents an agreement to exchange coupon, currency, interest or other types of payments between two parties as the underlying assets on which obligations are accrued is not exchanged. Payments are in the form of currency flows between the two parties so that the currency and the interest rate risk to be minimized and the future cash flows to better reflect changes in the assets and liabilities of the company. Most swaps are not traded on the stock exchange market.

First Investment Bank offers:

• Purchase and sale of derivative instruments traded on the Bulgarian regulated and OTC market;
• Purchase and sale of derivative instruments traded on the foreign regulated and OTC markets.