Trading Derivatives
Derivatives are a form of financial contract which are based on the price movements of an underlying instrument, such as an equity, index or currency, but which do not actually involve buying or selling the instrument itself. Premium Securities are an example of a derivative contract.
When you trade a Premium Security, you are buying or selling a contract for the difference in the opening and closing price of the underlying instrument, but you never actually own the share or index or currency as part of the trade.
However, the pricing of the Premium Security will reflect movements in the pricing of the underlying assets, and therefore prices are subject to all the same influences on these prices such as the effects of interest rates, inflation and market sentiment.
See “Premium Securities” for a fuller description of how Premium Securities work and their pricing.