It’s so easy too ignore this kind of thing, when you are more concerned with pitting food on the table, but it’s the kind of thing that comes back to bite you in a big way if you aren’t careful.
I don’t know what to think really. Would I like to be in a position where I get to play games with that kind of money? Yes, I suppose I would, if I wasn’t taking a big risk with my own livelihood to do it. Do I like the fact that other people get to make millions for themselves while gambling with the fates of millions and not taking much of a personal risk? No, absolutely not..
So erm, I guess I can’t really complain if I’m not willing to play the game myself? Argh, this stuff is all too complicated. Why did we have to go ahead and invent all these computers and complex systems in the first place?
What’s a derivative, you say? Good question. According to Wikipedia, a derivative is “a financial instrument that derives its value from the value of underlying entities such as an asset, index, or interest rate—it has no intrinsic value in itself. Derivative transactions include a variety of financial contracts, including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards, and various combinations of these.”
Another way of describing derivatives is that they are legal bets (contracts) that derive their value from other assets, such as the future or current value of oil, government bonds, or anything else (a.k.a., mortgages). A derivative buys you the option (but not obligation) to buy oil in 6 months for today’s price, or any agreed price…
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