Financial assets can be traded in a multitude of ways. Investors can invest directly in shares or in exchange-traded funds (ETF), which track a number of stocks. With ETFs, investor returns depend on the performance of the group of stocks as a whole. Investors can purchase bonds directly or invest in an index (such as the FTSE 100 Index). One of the most common forms of trading different assets is via the use of derivatives. A derivative (also defined in the General Commercial Knowledge: Strategic Challenges section), as the name suggests, is a type of instrument that derives its value from the value of other assets (called underlying assets). Commonly used derivative contracts include forwards, futures and options.
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By Jake Schogger - City Career Series