Many people are under the mistaken impression that only those with a business mind, or the “financially inclined” can invest in financial derivatives. However this couldn’t be further from the truth.
While it is certainly an advanced form of trading, you don’t need to invest hundreds of thousands of dollars, and can instead invest an affordable amount in financial markets such as commodities like silver, gas, and gold, CFD (Contracts for Difference), and Forex (Foreign Exchange Market).
The great part of this trading is that you can do it at home, sitting on the couch with your laptop on your lap. However there is definitely still an element of risk to this trading, which is why you should familiarize yourself with the markets (potentially using a demo account which won’t be using any of your money), and read through informational content which can teach you how to invest.
What are Financial Derivatives?
Derivatives are securities which are usually linked to other securities, such as bonds or stocks. When it comes to their value, derivatives can be hard to put a price on, since they don’t trade openly on public exchanges, and also because few details are disclosed about them by financial service firms.
Because they’re traded on the open market, their security is constantly fluctuating in value, and is constantly changing hands. If you’re a beginner when it comes to investment, you should ensure that you’ve gotten advice from a professional, or have done plenty of research and analyzed your potential options. Derivatives should never make up the entirety of your investment portfolio, and instead should make up just a portion as they can often be volatile, putting you at risk financially if you’ve relied on them heavily.
A few of the common types of derivatives are “futures” which are traded outside of the regular exchange, options- which are the right to sell or buy something at a specified price and date, and swaps, which are contracts which involve an exchange of payments or assets.
There are many advantages of derivatives, and they can be alluring to those new to investing since they require less money upfront and even a small price can quickly increase and decrease their trading account. Investors also control a big percentage of the derivative, meaning that if the value of the company increases, so does your investment.
However if the market you’ve invested in ends up going flat, you’ve just lost your initial investment, which is why you should only invest with money you can afford to lose.
While investing in derivatives can be riskier than other investment methods, it also comes with a greater return, and can be excellent for leveraging your portfolio. If you’re interested in getting as much return on your investment as possible, try an aggressive investment option like CFD trading or Forex.
It’s important to have a disciplined strategy, and to recognize that when it comes to investing in derivatives, knowledge is always power.