Facts, Tips & Tools to Build Your Millionaire Mindset - Issue 11

All Money Matters
Facts, Tips & Tools to Build Your Millionaire Mindset
Issue 11
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To view this Newsletter online, go to:
http://www.allmoneymatters.com.au/factstipstools11.htm

Hi Moneymatters

FACTS
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Derivatives

"Derivatives" is a financial product (Options,
Warrants, CFD's and Futures) whose value is 'derived'
from another, linked financial product (shares or
commodities). Derivatives are used to gear or leverage
investments in shares and/or commodities. They do not
represent physical, tangible assets directly but are
linked, via the actual share or commodity, to those
assets.

For example, BHP Options give the option holder the
opportunity to purchase (Call Option) or sell (Put Option)
a given number of BHP Shares at a future date at a specific
and agreed price (this is called the "exercise price")
should that Option holder choose. 1 Option usually equals
1000 Shares.

Options and Warrants can also be used to earn extra income
and hedge against market fluctuations.

Derivatives are normally used by professional fund managers
and sophisticated investors. All derivatives are to be
treated seriously and with respect; yes profits can be
multiplied, but so can losses.

If you haven't understood the above description, take
that as a clear indication that you need to either stay
clear from this type of investing or learn more, much
more!

TIPS
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- Do your homework! Sign up for stock exchange courses, and
make a few hypothetical or "paper" trades to get a
concrete idea of the risk. Prices can move quickly, up and
down – that is part of the high risk/high reward profile.
After you are comfortable with the idea, see a stockbroker.

- This is a complex area of investing, don't use, or be
talked into using, derivatives until you completely
understand the concepts and processes involved.

TOOLS
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www.asx.com.au - This is the Australian Securities Exchange
website and it contains lots of educational material on
Derivatives. We have not suggested any other sites as we do
not wish to recommend any specific broking houses.

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"Investment must be rational;
if you can't understand it, don't do it."
Warren Buffet
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Till next time ...

Louise Brogan
All Money Matters
www.allmoneymatters.com.au

All Money Matters, PO Box 298, Palm Beach, NSW 2108, Australia

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