The biggest of the World’s Money and Markets: Derivatives Investment

It could be derivatives the best investment? The worldwide derivatives market is estimated at $1 quadrillion USD or more in notional value, according to Paul Wilmott. Mr. Wilmott is one of the world’s leading derivatives experts, who holds a doctorate from Oxford University.

So What Is a Derivative?

Firstly, a derivative is a financial security based on a contractual agreement. Secondly, the value of this agreement depends on the fluctuations in the value of an underlying asset or group of assets. Basically is a contract between two or more parties. Therefore, the buyer agrees to purchase the asset on a specific date at a specific price. In addition, derivatives are used for two main purposes to speculate and to hedge investments.

The most common underlying assets for derivatives are stocks, bonds, currencies, interest rates, commodities, and market indexes. People commonly purchase these assets through brokerages.

Derivatives are products that maximize the potential of an investment. Therefore, most derivatives are leveraged. In other words, derivatives give investors the ability to make extreme returns. These benefits may not be possible with primary investment vehicles such as stocks and bonds. When people invest in stocks, it could take seven years to double their money. However, when people invest in derivatives, it is possible to double their money in a week.

Derivatives can trade into two categories: over-the-counter (OTC) and exchange-based. The exchanges heavily regulate the second category of derivatives. However, OTC derivatives constitute a greater proportion of the derivatives market.

The most common Types of Financial Derivatives:

CFDs.

Options.

Futures.

Forwards.

Swaps.

The best investment

The derivatives market functions very well. It is very dynamic and constantly improving. It has a quick development in the financial market. Because of constant product and technology innovation, the competitive landscape has been especially dynamic in Europe. Many countries in Europe have seen numerous market entries in the last years. In conclusion, operational efficiency, safety, and transparency have helped the global derivatives market to become safer and more efficient day to day.