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Investment guides: Derivatives

Created:
2 May 2007
Updated:
30 May 2007

Time was when derivatives were the preserve of sharp-suited City boys and geeky program traders. Not now. The internet has made spread betting, CFD and covered warrant trading easy and affordable for private investors - provided they know the risks.

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Over the past few years, we’ve written dozens of articles aimed at introducing people to the world of derivative trading and its uses. Below you’ll find a selection of articles grouped according to asset class. Please note that we're not affiliated or connected with any of the companies involved in retail derivatives, although many of them do advertise with us.

All derivative products have certain things in common. You can use them to speculate on rising or falling shares, thus increasing your universe of investment opportunities. All are free of stamp duty and capital gains tax. And all offer increased leverage; you get greater exposure to the potential upside or downside then you would get from simply buying and holding the underlying share.

Added to that, you can trade a whole host of things that you wouldn't be able to buy on the stock market - including commodities, currencies and even house prices.

SPREAD BETTING:

Introductory articles:

These items are the starting point, explaining the key features and uses of spread bets and how they can be used to lay off risk and avoid taxation.

Derivatives: the basics
The key uses of a spread bet
Clever uses of a spread bet (I)
Clever uses of a spread bet (II)
Defensive Strategies
How to pay less tax on investment returns
Glossary of spread betting terms

More detail:

For more details on the mechanics of spread betting, browse through the articles below.

Where did you get that price?
The true cost of borrowing
Tax tactics
Stop losses - with stop losses
Margins made easy

Examples and case studies:

How does spread betting work in practice? The articles below look at some real trades involving different asset classes. And we look at some of the myths surrounding spread betting, and some of the accusations occasionally levelled at spread betting companies.

Real trades
Sterling dollar intraday
FTSE100 over 2 days
Vodafone over 1 week

J'accuse! Spread betting in the dock

Spread betting myths
Stop losses taken out
Orders not filled
Skewed prices
Being requoted or turned down

CONTRACTS FOR DIFFERENCE

CFDs offer many of the benefits of holding a share, but without some of the costs. However, they're not for everyone. In 'CFDs: the basics ' we help you understand how the instruments work, and in '10 things to do with a CFD ' we look at some of their uses. 'The dos and don'ts of CFDs' should help you avoid some of the pitfalls.

For some practical examples of CFDs in use, try 'A week in the life of a CFD trader ' and 'Lessons learnt from a week of trading CFDs ', in which a former City dealer tries his hand at trading them.

Finally, here you'll find a guide to all the CFD providers in the UK (in .pdf form)

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