How do I make money investing in financial derivatives?

HowdoImakemoneyinvestinginfinancialderivatives?

Derivatives are contracts between two and more parties whose value is defined in a financial asset or portfolio of assets, typically including debt, mass commodities, currencies, interest rates, market indices and stocks, among others.

Futures contracts, forward contracts, options, swaps, warrants, etc. are very common derivatives and these derivatives are affected by the performance of the contract because of their value, which is similar to a stock option, which is also a derivative because its value is derived from the value of the stock.

stock

Although the value of the derivative is derived from the asset as a basis, the derivative does not own the asset, it just owns the contract sheet. Derivatives belong to the advanced or technical area of investment and are used for speculative and hedging purposes.

Take a simple example of a farmer and a middleman.

example

The farmer believes that the onset of the rainy season will affect the yield of harvested vegetables, causing the farmer's earnings to be affected, so the farmer is the one who approaches the owner of the middleman to sign a three-month contract, the content of which is that the middleman must buy all the vegetables at $10 for the next three months. The middleman enters into the contract to secure the supply of the commodity, and although both parties reduce the risk by hedging, they are still exposed to the risk of price changes.

The farmer is guaranteed the value of the price contract, but the price may go up, for example, if the weather is fine and the farmer has a very good crop, but will end up losing the extra income he could have received. Similarly, the price of the commodity may go down and the middleman will have to pay above market prices for the commodity.

This is where the use of futures contracts as a hedge allows farmers to focus more on running their vegetables and worry less about price fluctuations, while the middlemen are able to protect the supply of the commodity.

FEATURED HEALTH TOPICS

construction solution promotes safety and worker health in the construction industry

In the construction industry, the working environment on construction sites is prone to various accidents. As long as the supervision is not in place, workers w...

Follow in the footsteps of business digitalization, the future can be expected

Under the premise of business digitalization, the business model has also undergone changes, from the traditional business model to the deep integration of digi...

What are the advantages of pulp molded tableware

Due to the shortcomings of non-degradable polystyrene and biodegradable utensils difficulty in effective recycling, it has brought a lot of inconvenience to the...

Why the more roaring, the worse the grades of some children?

Why do parents yell?First, children are the future of the motherland, but also the future of the family. Everyone in the family has high hopes for him and loves...

How you can polish your picket furnishings at home?

Whilst wooden furniture appears to be like wealthy and has a timeless appeal, it demands periodic routine maintenance and conditioning to maintain its easy and ...

Child hospitalized with receding jaundice and fever because of sunbathing? These 8 knowledge points are baby sunbathing.

Although early spring is still a little cold, but once it clears, the sun once the sun to the window, lazy in the sun to sit and think about it is very comforta...

The right way to buy insurance, remember these three is enough.

I don t know if you have ever had such an experience: so-and-so insurance company Xin Yao Supreme Comprehensive Protection Plan you know it is an insurance, a...

What are wireless communication modules? What is the difference between them?

Along with the rapid development of IOT technology, IOT terminal devices are also widely used in various scenarios, different application scenarios have differe...

IoT becomes the gateway to edge computing.

Recently, there has been a lot of discussion about IoT platforms. Analysts have even created a category for developing IoT platforms.While there are many IoT pr...

Should university education be academically oriented or employment oriented?

With the gradual popularization of higher education, the number of college students with bachelor s degree is increasing day by day. At the same time, the numbe...