What are the advantages and disadvantages of securing with derivatives?

Provision with derivatives is the practice of investors using derivative investments such as options or futures to protect against losing other investments in their portfolies. Thanks to successful playback of one investment from another, the investor can have a minimum risk. The advantage of ensuring derivatives is that the investor cannot be damaged by poor safety that is the basis of the derivatives contract. Unfortunately, this practice also reduces the potential for the investor to earn profits, and also introduces a somewhat unpredictable nature of derivatives into the mix. The price of a derivative contract is usually a small percentage of the market price of basic security and offers the investor greater flexibility for short -term significant meaning. While some are looking for profits looking for, other investors prefer to secure derivatives as the best way to use these volatile tools.

There are several different methods of securing with derivEat available depending on the type of derivative in question. The investor can use option contracts known as Puts to balance the risk of a significant amount of a particular stock. Put gives the owner the right to sell 100 shares in the future in the future. If the stock price falls, the option contract becomes more valuable, which means that the investor can sell it for bonus as a way to jump into the buffer.

The other way the investor can use the derivatives in favor is through futures. The futures contract determines the sale of a specific security at the current market price on a certain date in Future. Again, the individual invested strongly in a certain security as a way to lock the selling price of this security. This also prevents the potential price drop.

Some disadvantages exist in ensuring derivatives that the investor must understand. First, the practice of securing is basically a bet against the initial investment. This means any profit from the initial investmentICE will be alleviated by the loss that the derivative has suffered. In addition, prices can move so quickly that the loss suffered by a securing derivative can outweigh any profits from basic security.