Planning Ahead for Your Portfolio
A Derivatives Contract is a legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future. Derivatives contracts are standardised for quality and quantity to facilitate trading on a derivatives exchange. Common underlying instruments include bonds, commodities, currencies, interest rates, market indexes and stocks.
A Derivatives Contract is a hedging tool with leverage - it allows for the maximisation of gain, or risk exposure with a lower capital requirement. Investors who trade in derivatives need to understand the market and risks involved before taking on any trades. With the right trading plan and good money management strategy, investors can apply leverage to their advantage or help mitigate risk by hedging on their portfolio.