Firminy Capital Sarl: What Are Derivatives

1. Firminy Capital Sarl: What Are
Derivatives?

2. The fund managers of Firminy Capital Sarl in
Luxembourg understand the importance of
protecting their clients’ assets. One method of
reducing risk involves derivatives. Essentially,
a derivative is a financial entity whose value
is determined by changes in a particular
asset or group of assets.

3. Suppose the owner of an asset is uncertain
about the value of the product in six months.
The owner opens a contract with an investor;
they agree that the price in six months will be
$50 per unit. Whatever the price, the investor
has committed to buying.

4. Six months pass. If the product’s market price
is above $50, the investor benefits, because
he or she can buy at a below-market value. If
the price drops below $50, the owner benefits
by selling at a higher value.

5. Because either the owner or the investor can
lose money, there is risk involved in
derivatives. However, careful use of them can
enhance a portfolio and protect against major
swings in prices.

6. Because either the owner or the investor can
lose money, there is risk involved in
derivatives. However, careful use of them can
enhance a portfolio and protect against major
swings in prices.