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A derivative is a contract where its value is derived from its underlying asset. The underlying asset can be stock, commodity, bond, currency, etc. In this contract, the buyer agrees to buy the asset on a specific date at a determined price. There are mainly three types of derivative instruments— futures, options and forwards.
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ETFs provide the flexibility of trading on stock exchanges, allowing investors to buy and sell shares throughout the trading day at market prices. On the other hand, mutual funds offer professional management and the convenience of trading at the net asset value (NAV) price, which is calculated at the end of the trading day. With their distinct characteristics and benefits, understanding the differences between ETFs and mutual funds is crucial in determining which option aligns best with your investment objectives and risk tolerance.
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