Being financially secure goes beyond just having a stable job and earning enough money. The recent years have witnessed how more people have become curious about how to properly invest and trade, attending crash courses and seminars (e.g., commodity derivatives training, equity derivative training).
If you’re planning to take a commodity derivatives training and equity derivative training, one of the basic terms you ought to be familiar with is “derivative.”
A derivative is a type of financial instrument whose value is derived from an underlying asset. The underlying asset can range from stocks and bonds to currencies and commodities. The most common forms of derivatives are:
Forwards. This is an agreement that covers something at a future date and at a price decided in the time when the contract is made. This type directly takes place between the involved parties.
Futures. In essence, forwards and futures share the same idea, only that futures are listed on the exchange and none between the counterparties cannot modify this form of derivative.
Options. Unlike forwards and futures, options contract allows one of the two parties to make a choice on when to buy or sell something. The catch is that party has to pay a premium.
Swaps. This is the most complicated form of derivatives as it involves the exchange of any financial instruments. Most swaps are exchanges of cash flows based on a principal amount initially agreed upon.
So, What Are Commodity and Equity Derivatives?
Basically, commodity and equity derivatives are a class of derivatives with values reliant on the price movements of one or more underlying assets that are either a commodity or an equity.
In economic terms, commodities refer to goods or raw materials that can be bought and sold. Equity, on the other hand, is a stock or any other forms of security that represent ownership of an entity.
Commodity and Equity Derivatives: Advantages
People investing in commodity and equity derivatives have steadily increased in the past years. For starters, profit from these derivative instruments come from:
Change in the supply and demand for commodities
Change in interest rates and equity markets
Still undecided whether to undergo a commodity derivatives training and equity derivative training? Here are some reasons why investing in commodity and equity derivatives is a smart choice:
They provide security against inflation. If you’re a player in the stock market, you’d know that inflation is a bad news. When you add commodity derivatives to your portfolio, however, the story becomes different. When the price of commodities increase, you’ll stand at an advantageous point as an investor.
They give you a diversified investment portfolio. Trading equity and commodity derivatives will help you achieve the desired diversification investors want to achieve. The underlying principle is: you don’t want to put all your eggs in one basket. With a diverse portfolio, your profit becomes more stable and you’d avoid bigger losses in the future.
They offer higher growth opportunities. Given that your investment plans are sound, you’d have a high chance of making huge profits using commodity and equity derivatives.