All types of derivatives are dangerous & can cause serious damage to an economy
Certain types of derivatives are OK, but other, more complex types lead to major trouble
They are not dangerous & should only be the business of those involved
Other (please state)
You can leverage positions via derivatives:
In this case, you can leverage mortgage-backed securities by buying credit-default swaps. There is only one mortgage-backed security, since they represent a real thing: the securities contained within. However, you can buy as many CDS as the market will sell since it is a bet on the success of the MBS.In general, leverage (or gearing) can be defined as borrowing funds to make investments. In the context of derivatives trading, investors can control large positions in derivatives for little amount of outlay or even for nothing at all.
It's leveraging because you can buy into extremely large positions with a small amount of money (or no money).
Ted Cruz is the dumbest person alive.
"Derivatives are not simple". Don't care how many times you claim them to be.
If derivatives were so simple we'd see ongoing threads in every message board in existence about how everybody's derivatives, in whatever function they chose to use them, has either added to their financial health or has reduced it. That's simply not the case. Nor will it ever be.
So let me take the easy way out in moving this thread along. Read the following:
Now, you pick one of the above means of using derivatives and share with us just how simple they are...and give us examples of how we can all JUMP INTO THE DERIVATIVES GAME and enjoy the simplistic and fun way of playing with derivatives while passing one's time away between making posts on the message board or forums.Derivatives used as a hedge allow the risks associated with the underlying asset's price to be transferred between the parties involved in the contract.
Commodity derivatives are used by farmers and millers to provide a degree of "insurance." The farmer enters the contract to lock in an acceptable price for the commodity; the miller enters the contract to lock in a guaranteed supply of the commodity.
Some derivatives are traded on national securities exchanges and are regulated by the U.S. Securities and Exchange Commission.
Other derivatives are traded over-the-counter. These derivatives represent individually negotiated agreement between parties.
What is a derivative?
Here's one... I'll set up some predatory company linking unqualified borrowers with lending institutions who will profit off of failed loans. Then...and now here comes to fun part...I'll make a bet (using derivatives) that most subprime borrowers will default on their loans.
I don't understand what you'll accomplish by getting people's opinions about an instrument that can be used in so many different ways.
How is understanding derivatives relative to the vast majority of people who don't have the knowledge or resources to indulge in derivatives?