Derivatives  Criticisms of Derivatives
Options offer the potential for huge gains and huge losses. While the potential for gain is alluring, their complexity makes them appropriate for only sophisticated investors with a high tolerance for risk.
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 When a derivative fails to help investors achieve their objectives, the derivative itself is blamed for the ensuing losses when, in fact, it's often the investor who did not fully understand how it should be used, its inherent risk, etc.
 Some view derivatives as a form of legalized gambling enabling users to make bets on the market. However, derivatives offer benefits that extend beyond those of gambling by making markets more efficient, helping to manage risk and helping investors to discover asset prices.
While professional traders and money managers can use derivatives effectively, the odds that a casual investor will be able to generate profits by trading in derivatives are mitigated by the fundamental characteristics of the instrument:
Lifespan  Derivatives are "timewasting" assets. As each day passes and the expiration date approaches, you lose more and more "time" premium and the option's value decreases.
Direction and Market Timing  In order to make money with many derivatives, investors must accurately predict the direction in which the market or index will move (up or down) and the minimum magnitude of the move during a set period of time. A mistake here almost guarantees a substantial investment loss.
Costs  The bid/ask spreads of more common derivatives such as options can be daunting. An option with a bid of 5.25 and an ask of 5.875 means an investor could buy a round lot (100 units) for $587.50 but could only sell them for $525, resulting in an immediate loss of $61.50 before factoring in commissions.
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Arbitrage
Investing
What Is A Derivative?
A derivative is a security whose price is dependent upon or derived from one or more underlying assets. Learn more on how investors can use this financial instrument in their trading strategies. 
Options & Futures
Derivatives 101
A derivative investment is one in which the investor does not own the underlying asset, but instead bets on the assetâ€™s price movement with another party. 
Fundamental Analysis
Derivatives 101
Learn how to use this type of investment as an alternative way to participate in the market. 
Options & Futures
Are Derivatives A Disaster Waiting To Happen?
They've contributed to some major market scandals, but these instruments aren't all bad. 
Stock Analysis
Make An Extra $35K A Year In The Most Misunderstood Financial Market
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Options & Futures
5 Equity Derivatives And How They Work
These derivatives allow investors to transfer risk, but there are many choices and factors that investors must weigh before buying in. 
Options & Futures
Is Your Mutual Fund Safe?
You might be carrying more risk than you think if your fund invests in derivatives. 
Term
Explaining Underlying Assets
An underlying asset is the financial instrument from which a derivative's price is based. 
Fundamental Analysis
Did Derivatives Cause The Recession?
We may never come to a consensus on what caused the financial collapse, but derivatives definitely share a large part of the blame. 
Options & Futures
Any Way The Wind Blows, You Can Trade The Weather
You can trade on anything these days, including the weather.

Derivative Product Company  DPC
A specialpurpose entity created to be a counterparty to financial ... 
Underlying Asset
A term used in derivatives trading, such as with options. A derivative ... 
Derivative
A security with a price that is dependent upon or derived from ... 
Equity Derivative
A derivative instrument with underlying assets based on equity ... 
Energy Derivatives
A derivative instrument in which the underlying asset is based ... 
Economic Derivative
A relatively new form of derivative contract (the first ones ...

How big is the derivatives market?
Examine the potential size of the total derivatives market, and learn how different calculations can reduce the estimate ... Read Answer >> 
Can mutual funds invest in derivatives?
Find out about mutual fund investment options, and understand whether mutual funds are permitted to include investments in ... Read Answer >> 
What is a derivative?
A derivative is a contract between two or more parties whose value is based on an agreedupon underlying financial asset, ... Read Answer >> 
What is the difference between derivatives and options?
Learn how options are one type of derivative and how equity options derive their value from a stock, and understand other ... Read Answer >> 
What does it mean when a derivative is marked to market?
Learn what it means when a derivative is marked to market. Mark to market rules have been put in place by global regulators ... Read Answer >> 
What does the underlying of a derivative refer to?
Find out more about derivative securities, what an underlying asset is and what the underlying assets refer to in stock options ... Read Answer >>