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An Introduction to Contracts for Difference

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Oct 302010
 

This article provides a brief introduction to Contracts for Difference (CFDs). Readers should note that CFDs carry a high risk. Those interested in trading CFDs should seek further information and advice before engaging in this field.

Contracts for Difference (CFDs) are a form of financial derivative that allow holders to speculate on price movements of underlying assets without actually owning those assets.

A contract for difference is a contract between two parties, buyer and seller, stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. (If the difference is negative, then the buyer pays the seller. If the contract is “short” these movements are exchanged.) [http://en.wikipedia.org/wiki/Contract_For_Difference] Continue reading »

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An Introduction to Derivatives – Futures

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Oct 302010
 

This article provides a brief introduction to financial futures. Readers should note that futures carry a high risk. Those interested in trading futures should seek further information and advice before engaging in this field.

A futures contract is the obligation to buy/sell a particular quantity of some asset at a specified price at some future date. The asset could be a physical commodity such as grain, orange juice etc, or a financial asset such as a stock, currency etc. In the case of physical commodities the futures contract also specifies the quality of the good to be bought/sold.

Unlike options, futures contracts MUST be fulfilled. Continue reading »

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An Introduction to Derivatives – Options

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Oct 302010
 

This article provides a brief introduction to financial options. Readers should note that options carry a high risk. Those interested in trading options should seek further information and advice before engaging in this field.

An “option” gives the holder the right to buy/sell an asset at a particular price some time in the future. Options have an expiry date.

A “call” option is the right to buy the asset. A “put” option is the right to sell the asset. Continue reading »

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An Introduction to Derivatives

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Oct 302010
 

This article provides a brief introduction to financial derivatives. Readers should note that derivatives carry a high risk. Those interested in trading derivatives should seek further information and advice before engaging in this field.

Definition

A derivative is a financial instrument derived from an underlying asset, eg a stock, stock index, currency etc. Derivatives allow holders to speculate on price movements of the underlying asset without actually owning the asset concerned. Continue reading »

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