MEFF, the derivatives market of BME has participated in the creation of the European Corporate Actions Committee (ECAC) together with the rest of the large European markets for Regulated Derivatives that comply with MiFID II or with similar non-EU regulations. The objective of this working group is to harmonize the adjustments related to corporate events that affect derivative contracts, such as Public Acquisition Offers (OPAs) or mergers, for example.
In this sense, the members of the Committee consider that it is essential that there is no destabilization of the market due to the different treatment of corporate actions between derivatives markets. In addition to BME's derivatives market, the Italian Stock Exchange, Eurex, Euronext, ICE and Nasdaq Stockholm are part of the ECAC. From now on, all of them will maintain continuous contact and will meet periodically to be aligned in the treatment of corporate events and thus guarantee an efficient, fair and orderly market.
But in any case, we must know that operating with derivatives through its different financial products is not an easy process for small and medium investors. If not, on the contrary, it entails a series of risks that are convenient to highlight so that there are no last minute surprises as has happened in recent years. Because in effect, it is a very special investment product that not all user profiles can assume due to different circumstances. Beyond the high volatility in their positions and that can lead to exceptional situations, in one sense or another.
What are derivatives?
To begin with, it should be noted that derivatives are financial products that are characterized above all by your excessive leverage and what differentiates it, for example, from buying and selling shares on the stock market. Not surprisingly, derivative products are financial instruments whose value derives from the evolution of the prices of another asset, called “underlying asset”. Where the greatest complexity lies in their investment models. Because we cannot forget that we are not looking at a product to use or conventional. If not, on the contrary, it is something different as you will see below.
One of the characteristics of derivative products is that they can be traded in both organized and unorganized markets. Hence, there is greater complexity in hiring them because the channels through which they are marketed are not very well known. As an example, it should be noted that in our country the official market for financial futures and options is the MEFF, where they are traded futures and options on the Ibex 35. But they also materialize on other less conventional financial assets that may be the object of our operations.
Characteristics in negotiations
With regard to this section, it should be noted that one of its most special characteristics lies in the fact that it bases its investment on what is an underlying asset, not on the price of some shares as in the purchase and sale of shares. same in bag. While on the other hand, it is based on a contract that can be bought or sold at any time during the trading session. Namely, no waiting for the expiration date as has become customary with a good part of banking and financial products. It is highly recommended that operations are carried out through an authorized intermediary.
On the other hand, they are also distinguished because in some cases there is no choice but to carry out a security deposit. This is something that you can see very much in futures operations and that can be transferred to other models in investment. Regarding the commissions and expenses in their management and maintenance, it must be said that they are generally more expansive, although there are very wide differences between one or the other formats. In any case, it will require a greater financial effort. Where it will be you who will have to decide whether or not it is worth carrying out from now on.
Derivative product classes
One thing you have to know is that there is not just one by-product, but several and of different nature and condition. In this sense, there is no doubt that we can find the following types of derivative products. Ranging from some very popular among speculative investors such as warrants to more unknown ones such as certificates. But if you want a list of these financial products here we show it to you so that you have it present in your investments at any time of your life.
- Futures.
- Certificates.
- Options.
- Warrants.
- Options contract
- CFD.
Each of the products with its own characteristics, but with a common denominator and that is that they are derivatives. With which savings can be made profitable from another investment strategy that carries more risks in operations.
Derivatives advantages
There is no doubt that one of the great benefits of this class of financial products is that you do not have to limit yourself to buying and selling shares on the stock market. If not, on the contrary, you have new business opportunities open, even if the situation in the equity markets is not the best of those desired. Namely, allows you to always be invested or keeping the money active to achieve high returns, which is what this sector is all about after all. On the other hand, they are products that are increasingly being marketed by financial entities.
When talking about the advantages of this class of very special investment products, we cannot forget at any time the fact that they are best known by a very relevant segment of small and medium investors. To the point that they focus part of their investment strategies on some of these investment models. This is the case of warrants, which is already one of the classics for investing money outside of buying and selling shares on the stock market. Unlike a few years ago when it was a new and emerging financial product that was rejected by a large part of the users.
Disadvantages of derivatives
The main one is the risk that can be generated in your operations due to high leverage and that can lead to very unwanted situations on the part of investors. It is true that with derivative products you can earn a lot of money, but also leave a lot of euros along the way. On the other hand, derivatives require a greater knowledge of their mechanics since they are not products that can be understood very easily, but rather the opposite. In this sense, you will require a higher level of learning in operations if you don't want them to be more of a problem than a solution to your needs in the investment world.
While on the other hand, there is also the informational element since they are more difficult to follow than conventional or more traditional models in the investment sector. Nor can it be forgotten that these investment formats are not the best strategy to create a stable and balanced savings exchange for the medium and long term. If not, on the contrary, is aimed at the shortest deadlines in its permanence. Where it is not the user who dominates the spaces of time as it happens in investment funds and stock market operations.
Is it convenient or not to hire them?
It is the million dollar question but it has many nuances in its answer. Especially due to the level of adaptation to this kind of complex operations by small and medium investors. But in all cases, for monetary amounts that are not very high and in this way better protect themselves from the movements that are generated in the financial markets. Another aspect to be assessed is knowing adjust prices, both entry and exit in the positions of derivative products. Success can sometimes depend on this little detail.
It is also very relevant if we have the need to invest our money through products as sophisticated as these are. If there is no urgency of this type, you should not opt for these models in investment. The purchase and sale of shares on the stock market will serve to satisfy our needs to make profitable the savings available until then. As well as depending on the profile that we provide as a small and medium investor: aggressive, intermediate or defensive. Only the former are authorized to carry out and carry out these operations in the financial markets. In addition, they are the ones who are most used to this kind of movement with the underlying assets and that can determine that the operation goes to success or failure. Of course it is that simple.