Tuesday, February 14, 2017

derivatives: options, futures, swaps

  • derivatives derive their value from other asset classes
  • derivatives run the gamut, from low risk hedging instruments to extremely high risks
  • products containing derivatives are often positioned by marketers in the industry to be lower risk than in reality
  • Options and futures are based off of a particular stock, or stock market, or a bond category. Options and futures can make an investment safer or riskier depending on how they are placed into a fund --- thus u need to understand intimately how derivatives are being used in any of ur underlying funds
  • it is quite difficult for the average investor to discern the true risk level of each type of derivative
  • for the average investor, it is best to shy away from direct derivative investing completely
  • caution you against products that contain customized derivatives, as opposed to listed futures and options
  • having a listed exchange behind the underlying options and futures gives u more protection and liquidity as well as a better gauge to measure the true value of what u have purchased

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