CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 84% 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.

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?

Via the derivatives exchange
Via stock market
On eBay or Amazon
Via mutual funds and exchange-traded funds
Next lesson

Why buy derivatives?

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Trading Glossary


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.

See all

Term of the day

Working Order

Stop  and limit orders  are together known as working, or pending orders. Essentially, they’re instructions for a broker to make a trade when an asset hits a certain price. Where have you heard about working orders?...

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The most common word

Bar Chart

What is a bar chart? A bar chart or bar graph that presents data with rectangular bars proportional to the values they represent. In trading and technical analysis , however, the bar chart definition is different. Often referred to as the...

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