Definition, Classification and Use of Derivative Financial Instruments

The article is devoted to the identification and improve of the classification of derivative financial instruments in order to support the order of their practical use. The analysis of scientific approaches to the definition and classification of derivative financial instruments is made, based on results of which the definition of derivative financial instruments is clarified and differences between derivative financial instruments and derivative securities are marked. It is proved the fallacy of certain approaches to the classification of derivative financial instruments. Disclosed the possibility of using derivative financial instruments in business transactions in order to avoid financial risks. Derivative financial instrument is identified as a fixed-term contract or a secondary security, according to which the owner is entitled to or receives an obligation after a certain period of time for a pre-agreed terms and conditions to carry out certain operations with the main financial instrument. Derivative financial instruments are secondary financial instruments and include exchange and off-exchange contracts and derivative securities.