Hedging and speculation two different faces of derivatives

Abstract

In this End of Master Paper, we would like to introduce another point of view on derivatives and their behaviour in the market and how they can be used. We also introduce some real cases happened in real life regarding derivatives, such as the cause of the financial crisis of 2008. We analyse some strategies and techniques used for hedging and speculation with the appropriate contracts, possible thanks to the working experience in the treasury department in hedging division and trading desk at Sabadell Bank and we will apply the theory to the reality. Another concept the we will analyse several times, will be the concept of hedging and speculation, together, because there are only few solutions which represent the pure meaning of hedging; other strategies have a little component of speculation. Regarding speculation, we will see the importance of the information in order to make great profit in few hours and also the possibility to speculate in long‐term, hoping in the improbable event. The purpose of this paper is to connect the theoretical side of derivative with the practical one, explaining how derivatives are used daily by companies and investors taking into account the characteristic of these contracts.