What are derivatives?

Welcome, readers! In the financing world, you know there are a lot of assets which can be traded in the traditional markets, namely stocks, bonds, commodities (gold and silver). A specific person would not want to own the assets but rather to speculate on them and the outcome would be a profit or a loss.

This is where derivatives come in. Derivatives are financial contracts decided upon two people or more based on the price of the underlying assets which I had said earlier. Derivatives take two forms: over-the-counter (OTC) trading and trading them on an exchange such as the New York Stock Exchange (NYSE).

OTC trading has the market makers as a platform to make their trades on. They are companies or individuals who quote buy and sell prices hoping to make a profit based on the OTC trading. The NYSE and the market makers are also called third-party providers as they act as intermediaries between buyer and seller.

Firmo Protocol

The Firmo protocol is going to revolutionize the way derivatives are going to be traded on the traditional markets. They are going to implement the system through blockchain technology. The protocol will be using the domain specific language called FirmoLang and contracts will be written in that manner. It is a special type of language similar to HTML. The Firmo protocol will eliminate all third-party providers as its aim is to have a decentralized economy by introducing secure and automated derivatives.

The NYSE is an exchange which is centralized. If there is a power failure in the United States, the whole exchange will go down with it. The advantage of the Firmo protocol is that it is designed to work with any exchanges including the NYSE.

FirmoLang

The FirmoLang language will be the first in the crypto world to help connect the bridge between cryptocurrencies and the smart derivatives which are more secure than the traditional ones. For example, people who do not want to buy the ERC-20 tokens directly on the Ethereum blockchain can speculate on the tokens by buying the smart derivatives supported by FirmoLang. In the future, FirmoLang will extend its support to other blockchains such as Bitshares, QTUM, EOS, and NEO.

Zero coverage can be used only when there is sufficient trust between the counterparties because derivatives without collateral can only work in this system. We know that the current system is tied in with collateral to do trades involving trades because we do not trust each other in this present system.

I believe the Firma protocol will be a great way to introduce derivatives on the blockchain without any worries whatsoever. My readers, you can find the website of the Firmo protocol in here. I base my article on this Technical Paper. Please join me in participating in this contest.

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