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  • Writer's pictureIshfaaq Peerally

More Complex Investing Instruments

As you know, recently I gave and passed the CISI Exam on Economics and Markets Advanced Wealth Management Level 4, which is required to become an Elite Pro Popular Investor on eToro. I've learned a lot studying for this exam, especially about other financial instruments such as options, derivatives, arbitrage, futures, margins, and short selling.

Today it is so easy to have access to these instruments but they are not recommended to beginners. For example, short selling is not something I will recommend beginners to do since you can lose more money than you own. We saw earlier this year how hedgefunds lost money shorting GameStop $GME or using leverages to invest in ViacomCBS $VIAC . If professionals are losing money with these instruments, better stay away from them. However, over time, you can learn to use them to enhance your returns.

Why do these instruments exist? They were invested mostly by people who are bored investing and want to have some more fun in the markets. Unfortunately, good investing is boring. A good reason to use complex instruments is to hedge.

You can also use these instruments for diversification. Owning the S&P500 $SPX500 is not diversification since most of these companies are correlated with each other. For example, I've made use of merger arbitrage to lower my correlation with the market.

It is, however, possible to use these instruments to enhance your returns. But always make sure they are backed by real assets and that these companies are in your circle of competence. Also, make sure to limit your losses, you should not do something where you can lose more than 100% of your initial investment. You should also always take a margin of safety.


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