<p class="p__1">( See how your broker compares with Investopedia list of the best online brokers). Melissa Ling Copyright Investopedia, 2019. Derivatives can trade non-prescription (OTC) or on an exchange. OTC derivatives make up a higher percentage of the derivatives market. OTC-traded derivatives, normally have a higher possibility of counterparty risk. Counterparty risk is the threat that a person of the parties associated with the transaction may default.</p>
<p class="p__2">Conversely, derivatives that are exchange-traded are standardized and more greatly managed. Derivatives can be used to hedge a position, hypothesize on the directional motion of a hidden property, or provide leverage to holdings. Their worth originates from the fluctuations of the worths of the hidden property. Originally, derivatives were used to ensure well balanced exchange rates for goods traded internationally.</p>
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