Surely you have heard on more than one occasion what financial derivatives are. With the primary objective of investing in these products to increase profitability in your personal or family heritage. But do you really know what these models consist of for investment? Well, financial derivatives are products or instruments whose value is based on the price of another asset. The asset on which it depends takes the name of the underlying asset, for example the value of a future on gold is based on the price of gold. Or in the case of other financial assets, such as raw materials or precious metals, among some of the most relevant.
In any case, they are a very powerful tool to improve profitability levels on investment. But with a special consideration and is that the risk of operations they are significantly higher than through other more conventional financial products. Where it is true that you can earn a lot of money, but for the same reason also leave a lot of euros on the way. This is one of the requirements that you must assume in the operations of financial derivatives.
There are as many financial derivatives as there are assets to which they are linked. For this reason it is a product that is highly diversified in financial markets. Because indeed, you have many models where to choose from now on. One of the divisions that are most traded by financial institutions is that which has to do directly with the type of underlying security. To the extent that it is a product that is offered to improve the low interest rates that are provided at the moment. But with a tremendous risk in its management, as you will see from now on.
Derivatives: value of the underlying
This selection presents several investment models, among which it stands out above all interest rate derivatives. In this case, it is a very special derivative that, as is logical to understand, depends fundamentally on interest rates. Derivatives such as those known as interest rate swap and whose main utility is based on the fact that you protect yourself from possible variations or excess exposure to an interest rate. That is, if you consider that these important oscillations can be generated, you can make these movements profitable with special efficiency. Because capital gains can be larger than through other more conventional financial products.
From this point of view, interest rates are more than just a variable that is used to link any line of credit. If not, on the contrary, it serves to make investments from different approaches. In any case, it is one of the alternatives that are becoming fashionable in the absence of feasible options for you to get a return on savings. However, it is not a typical financial product, the kind that a good part of small and medium investors hire. Rather, it is a more sophisticated investor profile.
Forex derivatives
Of course, this is another of the most frequent derivatives in the financial market. Because in effect, its strategy is based on taking advantage of variations in the currency exchange rate most relevant. Not surprisingly, these types of derivatives are usually made options or futures on a currency other than their own or even with two foreign currencies. From the most traditional such as the US dollar or the euro itself to other more exotic such as Brazilian reals, pesos or even the most unsuspected currencies of Southeast Asia.
One of the characteristics of this very special financial derivative is that it allows you to obtain very large profits. Of course, under an intensity greater than that of the more traditional financial products. Although for the same reason, you must bear in mind that you can also leave a lot of euros for the path of this investment. Therefore, the caution It will be the main common denominator of your performances. Above other technical and somewhat fundamental considerations. Through a financial product that is becoming popular with retail investors.
Derivatives in equities and commodities
Without a doubt one of the most sophisticated financial derivatives that you can find right now in the financial markets. Well, in this case it is a class of derivatives that fundamentally depend on an asset exchanged in the stock markets, for example stocks or bonds. However, there are also often options on raw materials, such as oil or gold. However, their main drawback is that they are very complicated to operate with.
In a way, they are very similar to what the options or futures. With very few differences in terms of its structure and mechanics to operate with them. In any case, they are much more sophisticated products than the rest and therefore are not intended for all profiles of small and medium investors. To the point that they make you lose a lot of money in operations from now on. In any case, it is a strategy that you have at the moment to operate in raw materials or even precious metals, as the most relevant financial assets at the moment.
What are the damages?
Trading financial assets is not suitable for all audiences. But only to a privileged few, not because they are very exclusive investment models. But because the main problem they entail is their complicated understanding. Not surprisingly, you may not even know how to operate with these special financial assets. It can create more than one problem for you when opening positions. As a consequence of this, it is very convenient that from now on you take into account some of its most relevant characteristics, such as those that we expose you below.
- It is a very specific financial product that requires prior knowledge of the financial markets where you operate. Don't try to force operations because it will have unwanted effects for your interests as a small and medium investor.
- Of course, it has very little to do with buying and selling shares on the stock market. This is one of the main reasons why you have to include them within the same category in investment. You think that they are models with many differences and to the point that they diverge in their approaches. To the point that they may not be the most suitable investment models for your characteristics as an investor.
- There is no single derivative, but on the contrary you can choose between different derivatives that can be adapted to your profile as a user. From the investment in precious metals like gold and silver to seek profitability in the changes of the main currencies of the world. You have practically no limits to search for content of these characteristics so little explored by large investors.
- If something that defines these very special financial products is undoubtedly the leverage level that have. To the point that they can make you earn more money than in other investment options. But as long as you know how to operate with them, why if not, the risks to be contracted are very high. Not in vain, you should ask yourself if it is worth hiring them from now on.
Advantages of financial derivatives
On the other hand, these investment models bring you benefits that other financial products lack. In this sense, one of the most appreciated lies in the fact that it opens new doors to the world of investment. Just as you had not imagined from the beginning. Among which also stands out the fact that you can trade any financial asset. As a real alternative to an unfavorable scenario in the equity markets.
It is also very remarkable that financial derivatives can add value to investments. As long as your financial contributions are not very large. But through complementary operations to the traditional ones. If operating under these parameters there is no doubt that they could be very profitable operations for your personal interests. Because you will even have models unimaginable a few years ago. As for example, in the cases of derived from CO2 emissions, inflation or any other.
Not surprisingly, you are facing a very flexible financial product that can be adapted to many scenarios and of a diverse nature. That is, you can trade a derivative at any time. So that in this way, you have more options to make operations profitable from now on. Although it is not advisable that you relate this product as if it were an investment in equities to use. Because then you would be making a serious mistake that would harm you in your desire to improve your personal or family assets. It is another of the factors that you must take into account to open or undo positions in the selected financial assets. Above other more technical considerations.