What Are Derivatives?

There are so many types of financial derivatives that it is misleading to refer to them as a single "market.

Recall all all the financial market-related products Phronimos Group 've learned so far: stocks, currencies, commodities, and indices, each with its associated financial derivatives.

The term "derivative" can be interpreted as securities derived from other assets or related parties in financial markets. Phronimos Group'll cover the most popular types of derivatives later in this course. However, it is worth noting that these products are carefully designed. Without relevant guidance, many products sound (and in fact are) very puzzling.

Many derivatives contracts are only available to institutional investors, such as pension funds, hedge funds and asset managers. For retail investors like you and me, the easiest way to participate is to buy funds set up by these institutions, such as mutual funds or exchange-traded funds (ETFs).

But even so, it is necessary to know more about the products invested. These derivatives are more speculative and riskier products, and misjudgment of the associated risks can result in serious losses to your portfolio.