Derivatives are financial products whose value is derived from another product, such as a share, index, commodity or currency. You therefore do not invest directly in the underlying product, but in a contract linked to its price. The value of the derivative moves in line with the price of that underlying product.
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The price of a derivative depends entirely on the value of something else.
Derivatives are often used to hedge risks or to speculate on price movements. Well known examples are options, futures and CFDs. With a derivative, you can for example anticipate a rise or fall in a share without owning the share itself. Because derivatives often use leverage, profits and losses can be larger than with a direct investment. They are therefore usually used by experienced investors.
Short example:
Suppose a share costs €100. Instead of buying the share itself, you buy a derivative that moves in line with the price of that share.
If the price rises to €110, the value of your derivative also increases. If the price falls to €90, the value of your derivative decreases accordingly. Your result therefore depends entirely on the price movement of the underlying share.
Disclaimer: Investing involves risks. Our analysts are not financial advisors. Always consult a professional advisor when making financial decisions. The information and tips provided on this website are based on the personal insights and experience of our analysts and are intended for educational purposes only.