Futures, Options, Warrants & CFDs
A derivative is a financial instrument that is based on another security. One such example is options. If the buying and selling of stock shares were non-existent, no options would trade either since these are based on shares.
Examples of Derivatives:
- Contracts For Difference (CFD’s)
There are many advantages to purchasing derivatives, some of which include:
- Increased leverage
- Ability to lessen risk
- Opportunity to trade a very short term window
It is important to understand the difference between derivative types. For instance, while options and warrants may seem identical at first glance, one is offered publicly and the other privately. One type an investor can write while the other can only be sold by the company; one is dilutive which requires the creation of additional shares while the other is based on existing shares. Then there are futures and contract for difference (CFDs), which is slightly different again. The point is: you need to learn about derivates and their individual differences before investing in them.
The following section of derivatives will provide a wealth of information not only on what each type is, but will reveal the inner workings of the derivative type. With this section you will be able to dissect each derivative according to its risk and reward, the objectives of each, and if it fits your investment style. Derivatives are quickly becoming the new way to turn small speculative capital into a healthy sum, and this section will explain how.
- Learn all About Trading Options 10 articles
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- Learn how to trade CFDs (Contract for Difference) 9 articles
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