Derivatives - GAAHHHH!!!

Discussion in 'The Club House' started by ScottA, Aug 20, 2013.

  1. ScottA

    ScottA FAA licensed bugsmasher Lifetime Supporter

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    Derivatives make a lot of news. They are often derided as the insidious instruments of Snidely Whiplash. And they have the reputation of the instruments which are sure to result in the downfall of the worldwide economy. But what really are derivatives?

    [ame]http://youtu.be/Wjlw7ZpZVK4[/ame]
     
  2. partdeux

    partdeux Well-Known Member

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    you're over thinking this

    We have smart people in Washington and Wall Street that know what they're doing.

    This is not the legal scam your are looking for.
     

  3. TekGreg

    TekGreg Lifetime Supporting Member Lifetime Supporter

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    Actually, I knew a VP of trading at one of the top five investment bankers on Wall Street. He was sent to a one-week long class to learn about derivatives, what they were, how they worked and who should invest in them. He told me he had just returned from this class in which they worked very, very hard - and he admitted that he still did not understand derivatives! This is something that an individual investor should learn VERY well before investing any money. You will probably NOT find any advisors that are well versed in the ins and outs of this instrument.
     
  4. texaswoodworker

    texaswoodworker New Member

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    What are derivatives? These are derivatives. :p

    [​IMG]

    Do you want to learn what integrals are too? :p
     
  5. texaswoodworker

    texaswoodworker New Member

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    Just looked into financial derivatives. Definitely looks like something that'd be a headache.
     
  6. partdeux

    partdeux Well-Known Member

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    Derivatives are actually very easy to understand.

    It's a financial mechanism to hedge (aka bet) protecting your position vs someone else position

    Kinda like black jack, house wins 49%, betters win 49%, house gets 2%.

    HOWEVER, and this is where it gets interesting. Both sides of the "bet" are insured by the same "book". And where it gets really interesting, the book dives into making the bets. Here you have the book (aka too big to fail global bank), making bets, insuring both sides of the bets, and generally creating their own market they are making money on.

    Over simplification, yes, but nonetheless accurate.