| What is a derivative? The term derivative is used | | | | there is one way in which you can make a huge |
| to mean futures, options and commodities. It | | | | profit by investing in options. That is of course, |
| could also be said as financial investments by | | | | getting a spy (from the company itself) to |
| which the value is generated (or derived) from | | | | expose to you the company's next major |
| performance of another security (for example; | | | | movement - be it investments, acquiring a new |
| stocks or bonds). | | | | technology patent or entering the next phase. As |
| Let's say you heard an advertisement talking | | | | good as it sounds, you can end up in prison if you |
| about the possibility of oil prices rising. Due to | | | | are caught doing this. |
| whatever events in the world that are happening, | | | | The stock market is a very dangerous place. The |
| they have caused the oil prices to rise and will | | | | same goes to bonds and mutual funds and |
| continue to do so, according to the news or | | | | commodities. As described earlier, options and |
| advertisement. You are interested. So you call the | | | | futures are both related to the stock market in |
| number provided by the advertiser. | | | | which "fast money" is involved. If you decide to |
| What now? You are convinced and think the idea | | | | go into stocks, then make sure you get an |
| of buying oil for the current price sounds | | | | honest broker. There is simply no other way. |
| profitable. You buy the futures from this | | | | Remember that for a dollar you make, someone |
| company with a value of $20,000. | | | | else loses a dollar. |
| You should know that buying futures can be said | | | | On a side note, futures and options are |
| to be similar to gambling. It has much high risks | | | | sometimes used by real world professional |
| when you are investing in futures. Why is this so? | | | | investors to make profits in a safe way. How do |
| The answer is futures work on a short-term | | | | they do this? They use futures and options to |
| basis. And we all know that short-term things | | | | hedge (or reduce their risks) their broad |
| carry a certain amount of risk. Price of oil can | | | | investment holdings. |
| move up and down anytime within a week. This is | | | | In conclusion, the investment methods described |
| why buying futures is compared to gambling your | | | | above are all very risky. It is best that you don't |
| money at the poker table. | | | | invest into them, especially if you are new to |
| What about options? They are as risky as futures | | | | derivatives. |
| also. It involves short-term to work. However, | | | | |