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In this section you’ll find a range of training modules designed to help you get to grips with the complex topic of derivatives.
What are derivatives?
Derivatives are financial instruments whose value is based on an underlying asset, index, e.g. FTSE 100 Index, or reference rate, e.g. UK interest rates. For example, futures are an agreement to buy or sell a commodity/financial asset on a future date at a fixed price. If you agree to buy the future and subsequently the price of the asset increases before the agreed date, then the buyer makes a profit. However, the seller could be liable for extensive losses.
Used carefully, derivatives offer an effective means of implementing market views and managing risk. It’s often cheaper and more practical to gain exposure to markets using derivatives. However, derivatives also carry risks and if not used properly they can lead to increased volatility and result in substantial losses.
Reproduced in collaboration with MDA Training.