Financial derivatives (futures and options) are known to be extremely dangerous instruments, but that fame does not correspond with reality. Probably this bad reputation is because they can actually become very dangerous if not used correctly and when they appear in major news media are generally derived because its misuse has caused a great loss to those who used them. Among the most famous are those of the trader Nick Leeson and Barings Bank collapse and the crisis of LTCM hedge fund . But that may become dangerous not to say that they are forever.

The “danger” of the derivatives (the derivatives are not dangerous, it can be dangerous is you use them) comes from its ability to leverage. Ie you can get a higher risk (even much higher) the money actually own. For example an investor or trader who has $ 10,000 can operate as if it had 100,000 euros, and profit and loss will be proportional to the risk incurred (100,000 euros in this case) instead of its real capital (10,000 euros in this case).
But leverage is not mandatory, only one possibility that can be used or not.


All equity derivatives are not more dangerous than ordinary investment in the stock market. In fact the reason they were created, and which are still perfectly useful, was to reduce the risks of operating in cash (ie, purchase / normal sale of shares, commodities, etc.).
Besides being dangerous have great flexibility in terms of strategies and ways of doing business with them. While there are strategies to derivatives that need constant monitoring in front of the screen there are other contributions that can be used by any investor without requiring more contributions than they would with any action that has been invested over the long term.

For example, an investor can tell the market that is willing to sell over the next 3 / 6 / 9 / 12 / .. months some shares of Union Fenosa at 50 euros (or 55 / 60 / …) when trading on that point is at 45 euros. And charge a fee for it although shares of Union Fenosa not reach 50 euros and therefore do not have to sell, so keep your actions and there will have an extra income. Likewise, quoting Union Fenosa to 45 euros, you can say you are willing to buy shares in Union Fenosa to 40 euros in the coming months and also paid an extra amount regardless of whether the shares of Union Fenosa reach 40 euros ( and have to buy them) or not.

You can also hedge against potential market downturns, to secure the purchase price of a stock before you have the money to buy them, etc. The great flexibility of derivatives makes the long-term investors can take advantage of its benefits without being affected by its “dangers” or having to stand in front of the display of quotes.

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