Advantages and disadvantages of trading derivatives

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MEFF, el mercado de derivados de BME ha participado en la creación del Comité Europeo de Acciones Corporativas (ECAC) junto con el resto de los grandes mercados europeos de Derivados Regulados que cumplen con MiFID II o con normativa extracomunitaria semejante. El target de este grupo de trabajo es armonizar los ajustes relacionados con eventos corporativos que impactan los contratos de derivados, como las Ofertas Públicas de Adquisición (OPA) o las fusiones, a modo de ejemplo.

To this end, the members of the Committee consider that it is essential that there is no destabilization of the market due to the different treatment of corporate actions between derivatives markets. At the same time as BME's derivatives market, the Italian Stock Exchange, Eurex, Euronext, ICE and Nasdaq Stockholm are part of the ECAC. From now on, all of them will maintain continuous contact and meet periodically to be aligned in the treatment of corporate events and thus ensure an efficient, fair and orderly market.

But be cual sea el caso, debemos conocer que operar con derivados a través de sus diferentes instrumentos financieros no es un procedimiento fácil para los pequeños y medianos inversores. Si no, por el contrario, implica una serie de riesgos que conviene señalar para que no haya sorpresas de última hora como ha sucedido en los últimos años. Debido a que en efecto, se trata de un producto de inversión muy especial que no todos los perfiles de Username pueden hacerse cargo por distintas circunstancias. Más allá de high volatility in their positions and that can lead to exceptional situations, in one way or another.

What are derivatives?

To begin with, it should be noted that derivatives are financial instruments that are fundamentally characterized by your excessive leverage and what differentiates it, by way of example, from buying and selling shares on the stock market. It is not surprising that derivative products are financial products whose value derives from the evolution of the prices of another asset, called the “underlying asset”. Where the greatest complexity lies in your investment models. Because we cannot forget that we are not looking at a product to use or a conventional one. If not, on the contrary, it is something different as you will see below.

One of the characteristics of derivative products is that they can be traded on both organized and unorganized markets. Therefore, there is greater complexity in their contracting because the channels through which they are marketed are not well known. As an example, it should be noted that in our country the official market for financial futures and options is the MEFF, where they are traded futures and options on the Ibex 35. But they also materialize on other less conventional financial assets that may be the object of our operations.

Characteristics in negotiations

Regarding this chapter, it should be noted that one of its most special characteristics is that it bases its investment on what is an underlying asset, not on the price of some shares as in the sale of shares. the same in the bag. While, on the other hand, it is based on a contract that can be bought or traded at any time during the trading session. Namely, without waiting for the expiration date as has been common in a good part of banking and financial products. It is highly recommended that operations be carried out through an authorized intermediary.

On the other hand, they are also distinguished by the fact that in some cases there is no choice but to carry out a security deposit. This is something that can be seen a lot in futures trading and that can be carried over to other investment models. Regarding the commissions and expenses in its administration and maintenance, it must be said that in general they are more expansive, even when there are very wide differences between one or the other formats. Whatever the case, it will require a greater financial effort. Where you will have to choose whether or not it is worth doing it from now on.

Derivative product classes

One thing you should know is that there is not just one by-product, but several and of different nature and condition. To this end, there is no doubt that we can find the following types of derived products. From some very popular among speculative investors, such as warrants, to the most unknown, such as certificates. But if you want a list of these financial instruments here we show it for you to keep in mind in your investments at any time in your life.

• Futures.
• Certificates
• Options.
• Warrants.
• Options contract
• CFD.

Each of the products with its own characteristics, pero con un denominador común y es que son derivados. Con lo que se puede rentabilizar el ahorro a partir de otra strategy de inversión que implica más riesgos en las operaciones.

Derivatives advantages

There is no doubt that one of the great benefits of this class of financial instruments is that you should not limit yourself to buying and trading stocks on the stock market. If not, on the contrary, you have new business opportunities open, even when the situation in the equity markets is not the best of those desired. Namely, makes it possible for you to always be invested or keep the money going to achieve high returns, which is what this sector is all about at the end of the day. On the other hand, they are products that are increasingly being marketed by financial institutions.

When talking about the advantages of this class of very special investment products, we can never forget that they are best known by a very relevant segment of small and medium investors. To the point that they focus part of their investment strategies on some of these investment models. This is the case of warrants, which is already one of the classics for investing money outside of buying and selling shares on the stock market. Unlike a few years ago when it was a new and emerging financial instrument that was rejected by a large part of the users.

Disadvantages of derivatives

The main one is the risk that can be generated in your operations by the high leverage and that can lead to very unwanted situations on the part of investors. It is true that with derivative products you can earn a lot of money, but also leave a lot of euros along the way. On the other hand, derivatives require a greater knowledge of their mechanics since they are not products that can be understood very easily, quite the opposite. For this, you will need a higher level of learning in operations if you do not want them to be more of an obstacle than a solution to your needs in the investment world.

While on the other hand, there is also the information element since they are more difficult to follow than conventional or more traditional models in the investment sector. Nor can it be forgotten that these investment formats are not the best strategy to generate a stable and balanced savings exchange in the medium and long term. But on the contraty, is aimed at the shortest deadlines in its permanence. Where it is not the user who dominates the spaces of time as it happens in investment funds and stock market operations.

Is it convenient or not to hire them?

This is the million dollar question, but it has many nuances in its answer. Especially because of the level of adaptation to this type of complex operations by small and medium investors. But in all cases, for monetary amounts that are not very high and in this way they are better protected from movements that originate in the financial markets. Another aspect to value is knowing adjust prices, both entry and exit in derivative product positions. Success can sometimes depend on this little detail.

It is also very relevant if we have the need to invest our money through products as sophisticated as these. If there is no such urgency, do not opt for these investment models. The purchase and sale of shares on the stock market will be useful to satisfy our needs to make profitable the savings available until that moment. As well as depending on the profile that we give you as a small and medium investor: aggressive, intermediate or defensive. Only the former are authorized to carry out and carry out these operations in the financial markets. At the same time, they are the ones who are most used to this type of movement with the underlying assets and who can establish that the operation goes to fruition or will fail. Of course it is that simple.