News Room

This week we continue to share with you investment tips with yet another related term so that you are better able to make sound investment choices. The week’s term is: Derivative

A derivative is a financial product whose price is dependent upon or derived from one or more underlying assets. Such assets can be stocks/shares, bonds or commodities. The derivative itself is a contract between two or more parties and its value is determined by fluctuations in the underlying asset. There are three classes of derivative contract types: futures/forwards, options and swaps. Your professional investment adviser would be able to explain these to you in more detail and advise you on which one would be a good investment for you. This is however, subject to your investment objective and the current state of the market. 

What does this mean for you?

People who invest in derivatives can expect to benefit in one of three ways: 

• Changes in interest rates and equity markets around the world 
• Currency exchange rate shifts 
• Changes in global supply and demand for commodities such as agricultural products, precious and industrial metals, and energy products such as oil and natural gas

Additionally, trading in derivatives benefits the entire stock market in that it reduces market risk, lowers the cost of trading and increases trading volume in stock market liquidity. For more information on derivatives, call ECFH Global Investment Solutions at 457-7233.