Because of the risks involved, a strategy that combines trading and investing is not for everyone. It’s important to have a strong financial foundation before adding leveraged products to your portfolio. You should also make sure that you have the financial stability to withstand the increased risk of loss when you add derivative products to your portfolio. In order to determine this, you could consider the following:
- If I lost my income, I’d be able to pay my living expenses for at least three months
- If I got into an accident or something happened to my belongings, I have the right short-term and long-term insurance to deal with the financial impact
- I have long-term savings specifically set aside for my retirement
- I’ve taken advantage of all the tax-free or tax-efficient investment allocations available to me
- I have an appropriate long-term investment strategy suited to my financial goals and needs
Lesson summary
- Derivatives are complex products, so it’s important to have the right knowledge before trading them
- Only add derivatives to your portfolio if you can handle potentially losing large amounts of money
