Derivatives

Derivatives are financial instruments whose value depends on an underlying asset (from Latin "derivare" = to derive). The underlying can be a share, an index, a commodity, a currency or an interest rate.

The most important types:

• Options: the right (not the obligation) to buy/sell an underlying at a fixed price
• Futures: the obligation to buy/sell an underlying on a fixed date
• Certificates: bank bonds that track an underlying
• CFDs: contracts for difference – leveraged products with extremely high risk

Warning: over 75% of private investors lose money with CFDs and leveraged derivatives. BaFin warns about them regularly. For normal wealth building, derivatives are completely unnecessary.