Concepts Of Trading A Leveraged Product

What do we mean by a leveraged product? A leveraged product is simply a means of ‘gearing’ your investment up, so that you’re controlling a larger position, but only paying now for part of that overall position. What this does mean is that any gain or loss is magnified, simply because the position you’re controlling and exposing yourself to is much larger than the amount of money tied up in that trade. Effectively, it means that we can make greater use of our money, controlling larger amounts of stock. We can trade it either Long or Short and make money in whichever direction the stock is moving; pro-viding of course, we trade in the direction it’s going!

You will find many examples of leveraged products available for trading. They are all “derivatives”, which is a word you may have heard, and wondered about. It’s quite simple really, examples of derivatives include Futures and Options, and many other things that are invented for the purpose. “Derivatives” are simply financial instruments that “derive” their value from another, but don’t include direct ownership of the other. You don’t pay out enough money to own the other, but your payment still gives you con-trol.

There are many books simply on leveraged products, but for the sake on what you need to know the above is enough, and you really should know what I am talking about anyway.

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