In the financial markets we are familiar with: foreign exchange, commodities, indices, virtual currencies, etc., in fact, each financial product has its own related financial derivatives, such as foreign exchange**, options, etc., and the latter is usually classified as alternative investment.
What are alternative investments?
Alternative investments refer to investments in financial (e.g., financial derivatives) and physical assets, such as real estate, assets, hedging, private equity, commodities and art, in addition to traditional assets (e.g., bonds, and cash). Hotspot Engine Program
Generally speaking, alternative investments are divided into two main categories according to the strategy approach:
The first category is investments in assets other than **, bonds, and cash, such as infrastructure, real estate, and private equity.
The second type is an investment strategy that goes beyond traditional investment methods, such as short selling and leverage, and the main investment target is financial derivatives.
Why you should learn about alternative investments
Alternative investment is a type of investment that can be magnified by buying and selling financial derivatives to earn profits, and its main investment purposes are 3:
Speculation, hedging and arbitrage.
Many world-renowned large companies will use derivative financial products to hedge risks, such as ** contracts and forward contracts, these derivative financial products can agree to deliver specific ** commodities in the future, so as to reduce the risks and losses caused by **volatility. In addition, some companies enter into contracts to protect themselves from exchange rate fluctuations.
Derivative financial products have high availability. These derivative contracts often make it easier for investors to speculate on individual assets, and they often use leverage to achieve a higher return on investment. (Derivatives require only a small margin to trade commodities using leverage.) ）
In addition, derivative financial products are also often used for arbitrage, such as in the ** market, which can analyze possible arbitrage opportunities according to the relationship between the upstream and downstream of the industrial chain. For example, if iron ore persists, it can be speculated that steel will also decline, so you can go short.
What are some common alternative investments?
In addition, there are many types of investment targets, which can be divided into the following 5 categories according to the attributes of the contract:
*(Future), Option, Forward (Forward), Exchange (Swap), Contract for Difference (Contract for Difference).
1. **futures).
*futures are standardized financial contracts that are listed and traded on ** exchanges. The investor pays part of the margin, and the contract gives the participant the obligation to buy and sell as agreed at a certain time in the future. Before the contract expires, the contract must be delivered, including physical delivery and cash delivery, and individual investors usually choose cash delivery.
If a trader does not intend to fulfill the contract, they need to close the position before the expiration date. If the position is not closed in time, the broker will force the position to be liquidated according to the market at that time on the expiration date. Therefore, ** trading needs to pay special attention to the expiration date. It is best for individual investors to avoid buying contracts that are about to expire, because the margin gradually increases before the contract expires.
2. Option
An option gives the buyer the right, but not the obligation, to buy or sell an asset to another party at a future date with an agreed execution**. After the buyer pays the deposit, he or she acquires the right to buy and sell the subject matter in a pre-set or determined future. The buyer can choose to exercise this right or waive it, so there are two types of options trading: call and put.
The advantage of options trading is that you can build more complex trading strategies by buying and selling different combinations of put and call options with different strikes** and expiration dates. However, the drawbacks are also obvious, as most options may become worthless at expiration, and traders must make enough profit before expiration to achieve profitability.
3. Contracts for Difference (CFDs).
A Contract for Difference (CFD) is a contract for difference (CFD) that is used to exchange the difference between the opening and closing of a trade. CFDs can closely track changes in the underlying financial markets, and trading profits and losses depend on the volatility of assets.
Almost all products can be traded through CFDs. For example, if you're interested in investing**, you can choose to trade WTI USD. The trading method is very simple, you can choose to go long or short.
If your trade direction is in line with the market trend, you can make a profit; Otherwise, you may suffer losses. CFDs allow investors to participate in the trading of various types of underlying assets without actually holding the asset.
4. Forward Contract
A forward contract is similar to a forward contract, which is an agreement between two parties to agree to trade an asset at a predetermined time in the future. The contract is settled at an agreed future date, and the buyer pays and collects the assets from the seller as agreed**, without the involvement of an intermediary. The amount exchanged on both the settlement date and maturity is determined and is not mark-to-market during this period.
Since forward contracts are privately negotiated and not publicly traded, there is a risk that one party may default. However, forward contracts also have their advantages, namely that they can be customized to the trader's needs and do not require an initial margin.
5. Swap Contract
A swap contract, also known as a swap contract, is a contract in which two parties exchange cash flows for each other. In simple terms, participants exchange assets under mutually agreed conditions. Common types of swaps include interest rate swaps, currency swaps, commodity swaps, equity swaps, etc. Currency swaps involve the exchange of principal amounts in different currencies and help hedge against potential exchange rate fluctuations.
Swap contracts are typically traded off-exchange and are usually used by financial institutions. Swap transactions are more complex and may require legal documentation, accounting, and regulatory compliance, increasing transaction costs.