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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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What Is a Derivative?

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Glossary
Reading time: 1 minute(s)
A derivative is a type of financial instrument that is not a security, but whose value depends on the underlying instrument, e.g. the index, stock or bond price.

Table of contents

  • A derivative is a type of financial instrument that is not a security, but whose value depends on the underlying instrument, e.g. the index, stock or bond price.
  • The value of the derivative is based on the fluctuation of the underlying, which means that the derivative itself has no value.

Where Are Derivatives Listed?

Derivatives are traded both on the OTC market and the stock exchange, but interestingly, most of the trading is actually generated on the OTC market.

Why Are Derivatives Used?

There are many reasons why derivatives are popular and used by investors:

  • Thanks to derivatives, it is easier to speculate on financial markets, where investors are looking for opportunities to make a profit on both the increases and decreases in the prices of financial instruments.
  • They are suitable for hedging, through which investors try to reduce the risk of their investments.

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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