What does a Derivatives Broker do?

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  • Written By: C. Mitchell
  • Edited By: John Allen
  • Last Modified Date: 26 February 2020
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A derivatives broker is an investment professional who advises individuals and corporations about how to buy, trade, and sell derivatives. Most of the time, brokers work in brokerage firms where they are a part of a derivative investment team. The day-to-day life of a derivatives broker can vary, depending on the client. Brokers negotiate deals between entities for derivative swaps, research international investment opportunities, counsel individual investors, and analyze corporate asset portfolios to calculate how much a company should risk in the derivatives market. His or her main job is to present options to a client, help the client make a decision on how to proceed, and execute the final choice.

Often referred to as “alternative investments,” derivatives require a different approach than would traditional stocks and bonds. In most cases, stocks and bonds represent tangible shares of a corporation, and they signify real ownership, even if just of a very small piece. Derivatives, on the other hand, represent the possibility of future growth. Also known as “futures” or “options,” derivatives are financial agreements that gain or lose value based on the possibility of growth, sales, or some other profit-garnering event later on in time.


There are several different types of derivative investments available. The broker's job is to work with a client to make an appropriate investment plan, and to provide investment tips. Sometimes, the plan will be to invest entirely in one sort of derivative, for instance, in foreign exchange derivatives. Other times, a more mixed portfolio is preferable, combining equity derivatives, insurance derivatives, or credit derivatives in some fixed proportion.

Understanding risk is one of the most essential tasks of the derivatives broker. It is imperative that the broker get to know the client and the client’s financial goals in preparing a strategy for investing in derivatives. One of the first things a derivatives broker will do is to inventory the client’s assets as a way of gauging what sort of risk is appropriate.

The proper investment formula will necessarily depend on whether the client is an individual or a corporation, the length of time the investment has to mature, and the potential impact of a risk not paying off, among other things. In many ways, the derivatives broker must act as a derivatives analyst, providing tailored advice on buying derivatives, selling derivatives, and the general practice of trading derivatives. The broker must also be able to act. Once the client decides on a course of action, it is the broker’s job to execute the trades and negotiations according to the client’s wishes.

Because the derivatives broker acts for the client in many aspects of the investment process, it is very important that a client choose a derivatives broker that he or she trusts and works well with. There are few formal training requirements to become a derivatives broker, and certification is not generally required. As such, it is important for clients to research the training and experience of any derivatives analyst before agreeing to let that person manage an investment portfolio.

Investing in derivatives can be a good way to earn fantastic returns, but it can also lead to major losses. Derivatives brokers overwhelmingly have financial backgrounds, usually with specialized work in economic markets, speculation, and calculating risk. Most brokerage firms have education requirements for associates, and a broker’s credentials should be readily provided on request. Even the best broker cannot guarantee results, but someone with professional training is likely to make better choices and recommendations than someone without.


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