DERIVATIVES

Derivatives are considered to be a new asset class even though they are not a tangible asset. A major advantage of derivative investments is that you can make money from them when the more traditional markets are moving sideways or down. In other words, you can make profits from derivative investments in both climbing as well as declining markets.

Derivatives are mainly in capital growth investments. A derivative's value is derived from another asset, such as property, bonds or shares. Most derivatives are based on what you expect the price of an asset to be at a date in the future - whether higher or lower. You invest by taking a bet on what you expect that price to be. There are many different forms of derivatives, but the best known are futures, options and warrants. Hedge funds, which deal mainly in derivatives, are becoming increasingly popular as alternative investment strategies. Hedge funds also come in many different forms.

Derivative markets are very complex and call for a high level of investor sophistication. Large amounts of money may be made in derivative markets, but it is also possible to lose a fortune, and many people have done so.

A new class of Mutual Funds based on Derivatives has been evolved known as Derivative Funds