Camori Investments are superannuation specialists and as you can probably tell from reading some of our pages on managed superannuation, self-managed superannuation and insurance, we do things a little bit differently.
Our philosophy is to match the very best products available to your specific situation, gaining you the best possible return on investment.
One of the ways we do this is by our Derivatives Advising Service.
Derivatives are underutilised and often misunderstood even by sophisticated investors as they can be complex in nature.
In some form or another, derivatives have been around since the 18th century with rice futures traded on the Dojima Rice Exchange.
In simple terms, a derivative is a contract between two parties. These two parties agree to sell or buy certain goods, at a given price, on a given date.
Going back to the rice example: you could agree to buy ten kilos of rice from a seller in 30 days for $10. The seller of the rice knows in 30 days he has a buyer who is willing to pay $10 for 10 kilos of rice, regardless of what the current selling price of rice is. If the price of rice was to decrease over the next 30 days, and the 10 kilos is now only worth $5, under the derivatives contract you are still required to purchase the rice for $10.
There are two main ways derivatives are used: for speculation or hedging.
Speculation is when you want the price of rice to be valued at $20, so you can buy it for $10 and make an additional profit.
Hedging is used if I know the price of rice is decreasing and I want to lock in buyers at the current (and higher price) so that my profits won’t be affected.
The term derivatives come from the fact that the value of the contract is derived from the underlying asset or commodity – in our case rice. A trading index or interests rates can also be the basis for a derivatives contract.
The most common types of derivatives contracts are forwards, futures, options, and swaps.
In Australia, some of the most common derivatives traded are interest rate derivatives, index derivatives, grain futures, energy derivatives, equity options and index options.
Unless you are a financial wizard, trading your own derivatives can be risky and for this reason, Camori Investments offers a Derivative Advising service. This allows us to understand your individual circumstances and make recommendations based on that.
If you are interested to see how derivatives can add to your superannuation or investment portfolio, please contact Camori Investments and speak to one of our specialists today.