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Trends & Analysis
News

TJX announces strong sales, dividend hike

News

Who wins the S&P 500’s bank battle?

News

USD/JPY edges lower on economic data

News

Li Auto shares race ahead on upbeat earnings

News

Can anything stop NVIDIA?

News

Gold rises on soft dollar, geopolitical concerns

Trends & Analysis
News

TJX announces strong sales, dividend hike

News

Who wins the S&P 500’s bank battle?

News

USD/JPY edges lower on economic data

News

Li Auto shares race ahead on upbeat earnings

News

Can anything stop NVIDIA?

News

Gold rises on soft dollar, geopolitical concerns

Derivatives definition

In finance, derivatives are a type of financial contract that derives its value from an underlying asset or group of assets. Derivative products allow traders to speculate on, and potentially profit from, movements in financial markets such as stocks, currencies, and commodities, without having to own the underlying asset. Traders also use derivatives to manage risk and hedge against potential losses.

 

Some common derivatives: options, futures, and swaps

An option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on a predetermined date. If the contract is not exercised, it simply expires worthless.

 

A future is an agreement between two parties to buy or sell an underlying asset at a specified price on a predetermined date. Unlike with options, both parties must fulfil the contract when it expires.

 

A swap is a financial contract between two parties to exchange cash flows in the future. The most common type of swap is an interest rate swap, where one party agrees to pay a fixed interest rate to the other party in exchange for receiving a floating exchange rate.

 

Benefits of trading derivatives

Traders can hedge existing positions to reduce risk exposure and offset potential losses in their investment portfolio. For example, a stockholder may use index futures to hedge against a potential market downturn without selling the stocks.

 

Derivative trading can also be leveraged, so traders can control a large position in financial markets with a relatively small starting capital. This has the potential to magnify profits substantially.

However, it can also increase losses, and traders should use leverage with caution.

 

Finally, derivative products offer traders a way to speculate on future price movements in financial markets without having to own the underlying asset itself. This increases flexibility in trading.

 

Start trading with ADSS

ADSS offers a range of global markets for traders, with opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.

See all glossary trading terms


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Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.

ADS Securities LLC (“ADSS”) is authorised and regulated by the Securities and Commodities Authority (“SCA”) in the United Arab Emirates as a trading broker for Over the Counter (“OTC”) Derivatives contracts and foreign exchange spot markets. ADSS is a limited liability company incorporated under United Arab Emirates law. The company is registered with the Department of Economic Development of Abu Dhabi (No. 1190047) and has its principal place of business at 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.

The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.

ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.