ISDA Master Agreement

Next video:
Loading the player...

The ISDA Master Agreement is a document outlining the terms of an over-the-counter derivatives transaction between two parties. This document serves as a standard agreement in these transactions and is published by the International Swaps and Derivatives Association. The ISDA master agreement applies to all future transactions between the two parties, which means that they do not have to renegotiate the terms before entering into new transactions together. Nevertheless, the parties can add or alter the terms of the master agreement by using a document called an ISDA Schedule.

There are no exchanges or intermediaries in over-the-counter derivatives transactions, since they are conducted exclusively between the two parties. The huge values and volumes in the OTC market made traders especially cautious. As a way to alleviate these fears, the ISDA Master Agreement was created in 1985.

The ISDA master agreement is especially valuable in that it contains clearly worded definitions of all contract terms for both parties, and the recurring transaction terms created by the agreement can save both parties considerable time and legal fees.

Related Articles
  1. Options & Futures

    An Overview of Weather Derivatives

    Investopedia explains: Weather derivatives allow businesses to safeguard against unusual temperatures or levels of precipitation that may adversely affect financial performance.
  2. Fundamental Analysis

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  3. Active Trading

    Diamonds: The Missing Commodity Derivative

    While they may be "a girl's best friend", diamonds haven't made it to the futures market - yet.
  4. Options & Futures

    5 Equity Derivatives And How They Work

    These derivatives allow investors to transfer risk, but there are many choices and factors that investors must weigh before buying in.
  5. Fundamental Analysis

    Using Decision Trees In Finance

    A decision tree provides a comprehensive framework to review the alternative scenarios and consequences a decision may lead to.
  6. Bonds & Fixed Income

    What is an Indenture?

    An indenture is a legal and binding contract between a bond issuer and the bondholders.
  7. Bonds & Fixed Income

    Credit Default Swaps: An Introduction

    This derivative can help manage portfolio risk, but it isn't a simple vehicle.
  8. Economics

    Currency Swap Basics

    A currency swap involves two parties exchanging a notional principal and interest to gain exposure to a desired currency.
  9. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  10. Mutual Funds & ETFs

    Top 4 Inverse Equities ETFs

    Explore analysis of some of the most popular inverse and leveraged-inverse ETFs that track equity indexes, and learn about the suitability of these ETFs.

You May Also Like

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  3. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  4. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  5. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  6. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
Trading Center