A derivative is a financial contract whose value is derived from an underlying asset, such as a stock, commodity, or currency. Derivatives can be used for a variety of purposes, including hedging against price fluctuations and speculating on price movements. They can be used to earn returns on investment by taking on a long position (betting that the price of the underlying asset will rise) or a short position (betting that the price of the underlying asset will fall).

Derivatives can be appropriate for certain types of investors

Institutional Investors

Such as hedge funds, pension funds, and other large financial institutions that have the resources and expertise to understand and manage the risks associated with derivatives.

Sophisticated Investors

Such as high net worth individuals or professional traders who have a good understanding of the derivatives market and the risks involved.

Risk-tolerant Investors

Who are willing to assume a higher level of risk in pursuit of higher returns.

However, it’s important to note that derivatives are complex and can be risky, and it is important to have a good understanding of them before using them as an investment tool. One should always contact a financial distributor before investing in derivatives.