CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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What is a derivative?

Financial derivatives are so amazingly varied that it’s actually a bit misleading to call them a single ‘market’.

Think of all the things we’ve learnt so far about financial markets: about shares, currencies, commodities, indices and so on. There will be a financial derivative linked to every one.

And this is the explanation for the term ‘derivative’. These securities are derived from other assets or aspects of financial markets. We’ll take a look at the most popular ones later in this course. But it’s important to note that they are engineered securities, that means many can seem (and often are!) tricky to understand without guidance.

Many derivatives contracts are only available to institutional investors like pension and hedge funds and asset management firms. The simplest way for retail investors like you or me to buy into them is via funds set up by these institutions – products like mutual fund or an exchange-traded funds.

But even then, some knowledge of what you’re investing in is necessary because derivatives appear at the more speculative end of the risk spectrum. Misunderstanding the risks involved can have dire consequences on your portfolio.

Test yourself

What is the simplest way for a retail investor to buy into derivatives?

On eBay or Amazon
Via mutual funds and exchange-traded funds
Via stock market
Via the derivatives exchange
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Why buy derivatives?

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Trading Glossary

1988

That's the number of terms in our glossary.


Do you know your CFDs from your IPOs or ETFs? Remove the mystery with our definitions glossary.

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Term of the day

Forward Contract

Looking for a forward contract definition? A forward contract is a contract between two parties that commits them to buy or sell an asset at an agreed price on a specific date in the future. This makes it a type of derivative, with the buyer...

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The most common word

Broker

A broker is the intermediary between an investor or trader and securities exchange. Brokers are the facilitators of liquidity in the financial system, and key players in the markets.  Here we take a look at the broker definition in...

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