Investing 101: Derivatives
Derivates are, hands down, the riskiest investment vehicle on the market. Its value is derived from an underlying asset such as a bond, stock, or commodity. Derivates are extremely volatile, which is why only experienced investors should put money in derivatives. Derivatives can trade on an exchange or over the counter (OTC). It can be used for speculation purposes or to hedge risks. Derivatives include options, future, rights, and warrants, just to list a few.
All about derivatives There are many types of derivatives, but the most popular one is an option. Options come in the form of calls and puts. As the name suggests, options give the buyer the right but not the obligation to exercise the call or put. Calls give the buyer the right to buy a security at a certain price on a certain date. Contrary to this are puts, which give buyers the right to sell a security at a certain price on a certain date.
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