What is Derivatives Trading?

Derivatives trading is one of the many different trading possibilities offered by financial markets. Derivatives are considered financial securities that represent an underlying asset.

Derivatives trading is one of the many different trading possibilities offered by financial markets. Derivatives are considered financial securities that represent an underlying asset. The value of these derivatives is exactly derived from an asset or several assets. 

Trading derivatives allow investors to exchange contracts that base their price on underlying assets. Investors can use derivatives contracts to hedge against future risks or to speculate with price fluctuations. 

Disclaimer: this post should not be considered investment advice. This is only for educational purposes only. Never invest more than what you are able to lose and always ask for information to your professional financial advisors. We are not financial advisors. 

How Does Derivatives Trading Work?

Traders can buy or sell contracts that would represent stocks, bonds, commodities, currencies or even a basket of stocks or currencies. Investors can buy and sell these contracts and profit from the price difference they have. 

Some of the most common derivatives include futures contracts, options and even swaps, among others. One of the positive things of derivatives contracts is that it is possible for investors to trade with leverage. 

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Is Derivative Trading profitable?

Derivative trading can be profitable as long as the trader knows when to buy and sell the contract. Moreover, if the investor is using leverage, the best thing to do is to close the position as soon as it reaches the target we were looking for. 

The profitability will always depend on a wide range of factors. There is no clear answer to whether derivative trading can be profitable. Nevertheless, it is definitely possible for derivatives trading to be profitable. 

How much do Derivatives Traders Make?

Derivatives traders can make a lot of money trading derivatives. However, the results will depend on the risk they are able to take. The trading strategies are also going to play an important role in how much Derivatives traders can make. 

One of the ways to trade derivatives is by using leverage. The larger the leverage the larger the risks but also the potential gains. If you trade with leverage, take into consideration you can lose all your funds. However, if the trade goes in the right direction, then the possibilities of making money increase. 

Where can I trade Derivatives?

You can trade derivatives in a wide range of platforms. Indeed, there are several trading platforms offering users with the possibility to trade derivatives. TD Ameritrade is one of the platforms where you can start trading derivatives.

eToro is another broker that is providing users with the possibility to get access to derivatives. These are just two of the largest platforms you can find. Local brokers are also a great option if you want to know how to trade Derivatives. 

Robinhood is also helping users get access to options trading. This is one of the most popular types of derivatives in the financial markets. 

Types of Derivatives

There are different types of derivatives that will allow you to execute your trading strategies. The investment tools you use depend on the interests you have. 


Options are contracts that allow investors to buy or not an obligation. The decision can be made by the trader taking into consideration the price of the option. There is usually a maturity date for the option that will be previously shared with the buyer. 

These options can be traded in several platforms. As we mentioned before, Robinhood offers a great solution for users to trade options. 


These financial instruments represent ownership in different assets. For example, a user could have purchased a security that represents the value of an underlying stock. Options are considered to be securities.

Some of the most popular securities include equity, debt and other forms of mixed debt and equity assets. In the United States, securities are regulated by the U.S. Securities and Exchange Commission (SEC). 

Futures Trading

Futures trading are similar to options. These are financial contracts where users have the obligation to buy or sell an asset at a specific date in the future and for a predetermined price. Compared to options, the trader has the obligation to buy or sell the contract. 

These contracts can represent currencies, virtual currencies, commodities and many other financial assets. These futures contracts can also be perpetual, meaning that there is no fixed date in the future or price at which the security must be sold. There are different platforms that are allowing users to trade futures contracts. 

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