Credit derivatives trading offers investors an opportunity for high yields. This type of trading is a form of hedging against credit risks in the market. Credit derivative strategies continue to develop, however, there are many books and articles by investment professionals, which you can use for research into trading credit derivatives.

Credit derivatives are easier to buy than other types of stocks or investment funds. The current goal in the financial world pushes for the credit derivative market to reduce risks and get oversight by a recognizable finance institution such as the Securities and Exchange Commission (SEC) or the New York Stock Exchange (NYSE)—particularly with regard to over-the-counter (OTC) trading. Unlike other kinds of trading, credit derivatives trading proves difficult to monitor.

1. Credit derivatives are easy to buy and have become popular with investors of all sizes.

2. Credit derivative trading is a form of betting on market contracts, buy outs and debt obligations.

3. Credit derivative swaps are a form of hedging against defaults or taking on more debt between companies, which protects investors across the board. For this reason some investors use credit derivative trading for speculating.

Action Steps
The best contacts and resources to help you get it done

Consult with a brokerage firm that handles credit derivative trading

While many consider credit derivative trading risky due to the lack of oversight by financial agencies, several reputable, traditional investment firms offer clients the opportunity to invest in credit derivative trading.

I recommend: JP Morgan Chase & Co. brokers trades in credit derivatives for institutions and wealthy individuals. CME Group, one of the largest traders of derivatives, offers risk management services.

Gain experience trading credit derivatives

Trading credit derivatives doesn't require a broker. If you have experience in handling your own investment portfolio, you may find it worth the risk to enter the realm of credit derivatives. Before you jump in with both feet, brush up on trading credit derivatives.

I recommend: PFGBEST.com gives a simulated trading program for beginners in the credit derivative market. If you're trading internationally, Euromoney Institutional Investor PLC is another program that includes online training for people interested in trading credit derivatives features.

Increase your results with tools for trading credit derivatives

Trading software that gives you access to stock information and investing tools are important in high-risk trading. Not only can they help you spot trends, they can also evaluate the risk involved.

I recommend: ESignal offers support services such as trading tutorials and high-speed stock information and allows a free, 30-day trial. Savvysoft's derivative selling software ranks highly within the financial world and provides demos that you can try out, including credit derivative pricing.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Credit derivatives sales and trading will continue to grow, but keep abreast of financial news and investment strategies. Until an agency oversees the process, expect changes.