Derivatives are financial instruments with it’s value “derived” or dependant on it’s underlying assets. Common underlying assets of derivatives are: commodities, interest rates, currencies, bonds, market indexes and more. Derivatives offer high leverage, because the cost of a derivative can be much lower than the future value of that same derivative. In other words, the value of the underlying asset is fluctuating, hopefully in your favour. The derivative is a contract between two people. The seller agrees to sell the underlying asset(s) on a specific future date. Common types of derivatives are: Futures, Options and swaps.

Derivatives offer great leverage. As the investor, it would be favourable for the value of the underlying investment for exceed the initial cost of the derivative. Derivatives are good for investors willing to speculate on a future event or change.

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