What is the simplest way for a retail investor to buy into derivatives?
Via mutual funds and exchange-traded funds
On eBay or Amazon
Via stock market
Via the derivatives exchange
Question 3 of 14
Why is it especially important to know what derivatives you are investing?
Some derivatives are illegal in certain countries
Derivatives have a very high tax levied on them
Derivatives are very illiquid
Derivatives are at the more speculative end of the risk spectrum
Question 4 of 14
What are the two main reason for buying derivatives?
Dividends and hedging
All answers provided are correct
Speculation and dividends
Speculation and hedging
Question 5 of 14
Is the quote “Institutional investors tend to make up their core portfolio with derivatives, to provide a secure annual income” true or false?
False
True
Question 6 of 14
What is the following case an example of: “If a portfolio contains corporate bonds, credit default swaps can be used as insurance against default on those bonds”.
Statement is wrong
Standard trading flow
Speculation
Hedging
Question 7 of 14
A CFD is an agreement between two parties that guarantees the difference between an asset’s current price and its price at contract expiry will be settled by the losing party.
False
True
Question 8 of 14
CFDs offer the ability to trade the following assets:
Commodities
All answers provided are correct
Indices
Shares
Question 9 of 14
Described as one of CFDs disadvantages, which of the following is fixed?
Contract expiry date
Contract size
Contract type
No answers provided are correct
Question 10 of 14
What does a ‘long’ position mean in CFDs?
No answers provided are correct
When an asset is bought/sold as a long-term investment
When an investor buys an asset
When an investor buys a long range of different assets to minimise risk
Question 11 of 14
What does a ‘short’ position mean in CFDs?
No answers provided are correct
When an investor sells an asset
When an asset is bought/sold as a short-term investment
When an investor buys a short (small) range of different assets
Question 12 of 14
Do investors actually own the shares of the companies that they’ve bought in CFDs?
No
Yes
Question 13 of 14
Imagine if you’ve called a long position for 50 Rocking shares when they were at $20 in CFD and at contract expiry they went to $25. How much money did you make/lose?
None, because ‘going long’ is not investing
Made $50
Lost $250
Made $250
Question 14 of 14
Imagine if you’ve called a short position for 50 Rocking shares when they were at $20 in CFD and at contract expiry they went to $25. How much money did you make/lose?
Lost $50
None, because ‘going short’ is not investing
Lost $250
Made $250
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