The Benefit of Derivatives

The underlying financial asset's value may alter on a regular basis. For instance, the value of a stock may go up or down. Alternatively, the rate of exchange for a particular currency pair may alter, the prices of the commodities may shoot up or drop and the indices could fluctuate. These varied changes provide investors with the opportunity to earn attractive profits or gains by simply guessing the correct price in future.

Put simply, derivatives provide you with the unique opportunity to earn additional money on stocks that are not being used currently. Thus, when investors don't wish to sell of their shares and retain them for longer period but intend to make the most of the short term pricing fluctuations can utilize derivatives to fulfil their desires.

Apart from this, derivatives also let you take advantage of arbitrage i.e. buying low in one of the financial markets and selling high in another one. Derivatives also prove useful in safeguarding your financial securities from fluctuating prices. This means you can turn to the derivatives market to choose products that permit hedging against a drop in the share prices possessed by you. In fact, the market also provides products that can be used for protecting yourself from an increase in the share prices that you intend to buy. Derivatives also allow investors to transfer the risk to other investors who have the potential to speculate and take risks.