There is a wide range of financial markets available for traders. Traders can choose from stocks, CFDs, currency pairs, cryptocurrencies, or digital financial derivatives. Some are on the market longer, some are rather new. For example, cryptocurrencies are comparatively new. And so are digital financial derivatives.
It is common that people are afraid of what is new. Some traders will describe digital derivatives in high-risk terms. They will even put them on the same shelf along with gambling.
But let’s be honest. Financial trading will always have a certain degree of risk included. One can earn a lot of money, another may lose. No matter what sort of financial instrument you are trading, you have to be ready to take some portion of the risk.
Bearing above in mind, more and more people are trading digital financial derivatives. Nowadays millions of traders around the world do this, and online brokers for this security are becoming very popular.
Now, shall we look at the reasons behind the popularity of derivatives that make them so appealing to the traders?
Key Takeaways🔑
| →Digital financial derivatives offer an accessible entry point to trading with a smaller initial investment. |
| →Profits from these derivatives are independent of market direction; minor shifts in the predicted direction can lead to significant returns. |
| →Losses are limited to the initial investment, reducing the potential risk compared to some other financial instruments. |
Contents
No reliance on whether markets are trending.
Unlike most of the financial instruments, trading digital financial derivatives do not depend on whether the markets are trending or not. You can still earn money, which is naturally good for the trader. If, for example, you are trading stocks, your opportunities to make money are limited to the right situation on the market. It means only when the price rises or falls in relation to the strike price. Moreover, in order to make a solid profit, the movement in price must be large enough.
Digital derivatives are highly diverse. Your part is to anticipate if the market price will be higher or lower after some time. Even such a small shift like 0.001 in the direction you were forecasting, may bring you profits of as much as 90% of your initial investment. This is because they have a determined from the beginning return. And this is especially useful when markets are changing, but price fluctuations are small.
No need for massive investments.
You do not to be a billionaire to start trading this kind of security. And this is what attracts many traders. You can start with a small deposit. It is possible to open a trading account with just $10. Then you can open a digital derivative position for only $1. In a fraction of the time, with a return level up to 90%, you can earn $0.90.
As we mentioned before, other assets, like stocks or cryptocurrencies, demand large initial investments. Let’s say you want to buy a single bitcoin. For one coin you will have to pay around $10,000. Moreover, you cannot be sure if the value of bitcoin will rise in the foreseeable future.
A fixed return.
You get to know what the potential profit you can gain even before opening a trading position. This will be the percentage of the amount you invest in a transaction. You can find 60 to 95% returns on different platforms. And this is why digital derivatives are so widely traded.
The assets you trade and the current market volatility influence the amount of possible profit. So during a day, the return on a specific resource will fluctuate. You can use this knowledge in your favor choosing to trade assets with the highest returns at a particular time of the day. In case of losing some money, you are able to make up for that loss with a few profitable transactions.
Again, other financial instruments are not that favorable. The profit you can make is affected by changes in asset price. The profit will be higher when the price is moving further in the forecasted direction. You cannot expect spectacular profits if the market you are trading is not highly volatile.
You cannot lose more than your initial investment.
So you already know how big profit you can make. Another good thing about trading digital derivatives is that you know as well, how much you can lose before opening a trading position. You cannot lose more than the amount of your trading investment.
Some brokers, just like Olymp Trade, give you the possibility to close the trade prior to expiration. If you decide to do that, and the transaction was profitable, you will get a part of what you were supposed to earn.
Imagine that you have made an investment of $10 in a transaction with a return of 80%. The trade went as you intended but you want to use the possibility to exit before the transaction expires. You will then get up to 20% net profit without waiting for expiry time. You can close your trade before expiration but not later than when 1/6 of the expiration time is left.
In case of trading currency pairs, commodities, or others, it might happen that you will loose more than your investment amount. When the trade is turned against you, the broker will keep the trade open with the money from your account balance and your lost will exceed 100%. Therefore, it is good to use a stop loss while trading these types of markets.
Not difficult to learn.
A number of investors claim that trading derivatives are difficult. Yet it is not. In all markets, you will use similar charts, the same tools or trading strategies. No matter if you trade financial derivatives, currency pairs, or commodities, to be successful you will need to learn to read price charts, to employ indicators, develop a trading method and be familiar with trading psychology.
It is also worth noting that investors with experience in different markets, often consider trading this security pretty easy.
Pros and Cons👍👎
👍 Pros of Digital Financial Derivative Trading:
- Requires a smaller initial investment compared to other financial instruments.
- Offers the potential for high returns even with minor shifts in the predicted direction.
- Allows traders to limit their potential losses to the initial investment.
👎 Cons of Digital Financial Derivative Trading:
- While easier to learn, successful trading still requires careful strategy planning and market analysis.
- Trading this type of security does involve risk, and not all trades will be profitable.
- May not be suitable for all investors; understanding of financial markets is necessary.
| Components of Derivative Trading | Role in Successful Trading |
|---|---|
| Understanding Market Direction | Key to predicting potential returns, irrespective of whether the market is trending or not. |
| Minimum Investment | Facilitates access to trading for a broader range of investors due to lower financial commitment. |
1-minute profit.
In the digital derivatives market, you can earn money fast. In most other markets, making a profit usually takes much longer. Naturally, it could be in seconds, but also in days or weeks. This is because you need to wait until the traded asset’s price hits a pre-specified target price.
However, digital derivatives markets are configured in such a manner that they expire after a certain period of time. Your task is to anticipate whether the price will be higher or lower compared to the strike price at the time frame. This makes gaining profit in just a minute possible. (We do not recommend trading short expiry times, though.)
These are the reasons we found why digital financial derivatives are becoming so popular. Maybe you will find some more. In such a case do not hesitate to tell us about them in the comments section down below.
Wish you only profitable trades!
Q&A:
- Q: Can you trade digital financial derivatives with a small initial investment?
- A: Yes, one of the appeals of digital financial derivatives is that they require a smaller initial investment compared to other financial instruments.
- Q: Are profits from digital financial derivatives dependent on market direction?
- A: No, profits can be made irrespective of the market direction; even minor shifts in the predicted direction can lead to significant returns.
- Q: Are losses in digital financial derivative trading limited?
- A: Yes, losses in this type of trading are typically limited to the initial investment.
- Q: Is trading digital financial derivatives easy to learn?
- A: While trading these derivatives can be easier to learn than other financial instruments, successful trading still requires careful strategy planning and understanding of the markets.
- Q: Is digital financial derivative trading suitable for all investors?
- A: While it offers an accessible entry point, it might not be suitable for all. A solid understanding of financial markets and careful strategy planning is necessary for successful trading.