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Welcome to My Trading Room, Volume III by Jacques Magliolo

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CHAPTER 12

Derivative Basics

Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.

—George Soros (1930–Present)Hungarian–American investor and philanthropist

Just an Introduction

A derivative is a securities instrument, which is a higher risk, and one that you cannot own. For instance, you own shares that you buy, but a future’s contract enables you to acquire the potential growth of its underlying security.

Let me simplify the aforementioned:

If you bought 10,000 dollars worth of a share (Company ABC), then you own that stock.

image Your risk profile is 10,000 dollars. ...

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