Learning path 8 of 9
Derivatives and advanced market concepts
Futures, options, leverage, short selling, options Greeks and volatility, with a clear focus on how quickly losses can grow.
21 lessons in this path. Progress is saved in your browser as you go.
Derivatives are contracts whose value depends on something else, such as a share or an index. Futures and options let traders take large positions with a small amount of money, which means gains and losses are both magnified.
Derivatives and leveraged trading can lead to rapid and substantial losses, sometimes larger than the money you started with. This path explains how these products work so you can understand news, products and risks, not to encourage trading them. Each lesson shows the losing side of every example as carefully as the winning side.
Who this path is for
Learners who have finished the foundations, technical analysis and investing paths, and want to understand derivatives and market mechanics in depth.
What you will be able to do
- Explain futures and call and put options, including strike, premium and expiry.
- Draw and read option payoff diagrams.
- Calculate how leverage and margin magnify gains and losses.
- Explain options Greeks, volatility and the limits of backtested trading systems.
Before you start
- Stock market foundations: Derivatives are priced from shares and indices, so you need to understand how those are traded first.
- Investing and portfolio management: Position sizing, drawdowns and risk capacity are essential before using leverage of any kind.
- Technical analysis: Most derivative trading uses the chart and backtesting concepts taught there, including their limits.
The route, module by module
Take the modules in this order. Filled stops are lessons you have completed; dashed stops are still being written.
Module 1Futures and options basics
What derivatives are, forwards and futures, margin and mark-to-market, calls and puts, strike, premium, expiry, moneyness, payoffs and breakevens.
Module 2Leverage, short selling and risk
Leverage and margin, short selling, liquidity and slippage, the different risks of option buyers and sellers, and expiry, gap and settlement risks.
Module 3Volatility and options Greeks
Historical and implied volatility, delta, gamma, theta and vega, time decay, and why option prices move the way they do.
Module 4Hedging, arbitrage and basis
Using derivatives to reduce risk, the costs of hedging, arbitrage between cash and futures, basis and convergence at expiry.
Module 5Market microstructure and quantitative methods
How orders interact at the level of the order book, algorithmic trading, and the basics of quantitative analysis.
Related paths
- Technical analysisRead price charts honestly. Candlesticks, trends, support and resistance, common indicators, backtesting, and the real limits of chart-based methods.
- Scams, myths and investor protectionHow investment scams work, how to check a claim against official sources, and what to do if you think you have been targeted.