View Poll Results: What is your opinion on financial derivatives?

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  • All types of derivatives are dangerous & can cause serious damage to an economy

    73 62.39%
  • Certain types of derivatives are OK, but other, more complex types lead to major trouble

    40 34.19%
  • They are not dangerous & should only be the business of those involved

    0 0%
  • Other (please state)

    4 3.42%
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Thread: Your Opinion On 'Derivatives'

  1. #21
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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by joG View Post
    I am not sure I would say that. While it is true that the sum of derivatives volumes cascade to a much larger number they cancel each other out.
    Too big to fail does not allow them to cancel each other out.
    Quote Originally Posted by calamity View Post
    Reports indicate that everyone knew he was hauling a bunch of guns up there. But, since you brought it up, there's something which should be illegal: guns that breakdown.

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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by KevinKohler View Post
    Too big to fail does not allow them to cancel each other out.
    I am not sure i see the allusion.

  3. #23
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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by joG View Post
    Which leverage do you mean ie which construction do you have in mind?
    You can leverage positions via derivatives:
    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.
    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.

    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.

  4. #24
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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by joG View Post
    I am not sure i see the allusion.
    Derivatives "cancel" each other out...meaning, SOMEONE wins, and SOMEONE loses.


    If the loser is "too big to fail"....
    Quote Originally Posted by calamity View Post
    Reports indicate that everyone knew he was hauling a bunch of guns up there. But, since you brought it up, there's something which should be illegal: guns that breakdown.

  5. #25
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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by whysoserious View Post
    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.

    It's leveraging because you can buy into extremely large positions with a small amount of money (or no money).
    That is what I thought. Yes you can buy cds in the market. But the cds are produced and in the overwhelming majority of cases there are underlying securities those cds are based on.the original swap is hedged. So again yes you can purchase cds and pump up your position to extremes. But the total risk in the system will not do the same, though you have leveraged yourself enormously.

  6. #26
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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by Terrafaux View Post
    Conceptually ("meta-theoretically", maybe definitionally as a synonym too), derivatives are simple. I'm talking about the idea of derivatives in that post you quoted, not their implementation in practice. Complexity arises in the models which are used to simulate, estimate, quantify and evaluate derivatives, but the purpose, let's say, of derivatives should be simple to wrap one's head around, if that clears things up.

    I don't want to define derivatives because the point of this thread is to see how most people define them and how that influences their opinions on derivatives; how structures like the media have an agenda in promoting certain views of them; etc.

    I'm curious about the bolded, care to elaborate your thoughts?

    Cheers
    Won't define derivatives so as not to influence opinions? Gosh, that's sweet of ya.

    "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:

    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?
    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.

    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?

  7. #27
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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by Terrafaux View Post
    I'm curious to know what your opinion on derivatives is based on your understanding of what derivatives are. The term is bandied around quite loosely in the media, meaning there's much confusion about their technical applications and functions, scope, and nature, which is part of why I am asking this question.

    Do you associate derivatives with the 2008 crisis? Smoke-filled rooms and Fed conspiracies? Do you reflexively react negatively at their mention? Are they a method to accumulate wealth riskily but quickly? Simply financial instruments of specified conditions which all private individuals involved can benefit from? Perhaps only a single party can benefit, thus representing some form of zero-sum approximation?

    If you consider yourself well-versed in economics/finance, I'd appreciate you mentioning that in your post, especially.

    Cheers
    I associate derivatives with calculus.
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  8. #28
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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by Redress View Post
    I associate derivatives with calculus.
    What is the first derivative of x cubed?

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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by Declan View Post
    What is the first derivative of x cubed?
    Ask me 25 year ago ad I might have been able to answer you. I have long dumped almost everything I learned about calc.
    We became a great nation not because we are a nation of cynics. We became a great nation because we are a nation of believers - Lindsey Graham

    Quote Originally Posted by Fiddytree View Post
    Uh oh Megyn...your vagina witchcraft is about ready to be exposed.

  10. #30
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    Re: Your Opinion On 'Derivatives'

    Quote Originally Posted by Terrafaux View Post
    I'm curious to know what your opinion on derivatives is based on your understanding of what derivatives are. The term is bandied around quite loosely in the media, meaning there's much confusion about their technical applications and functions, scope, and nature, which is part of why I am asking this question.

    Do you associate derivatives with the 2008 crisis? Smoke-filled rooms and Fed conspiracies? Do you reflexively react negatively at their mention? Are they a method to accumulate wealth riskily but quickly? Simply financial instruments of specified conditions which all private individuals involved can benefit from? Perhaps only a single party can benefit, thus representing some form of zero-sum approximation?

    If you consider yourself well-versed in economics/finance, I'd appreciate you mentioning that in your post, especially.

    Cheers

    They're nothing new and are still around with major Wallstreet Banks holding Trillions in interest backed derivatives. ( One of the primary reasons the FED is still manipulating the money supply )

    They were NOT the cause of the 2008 Subprime mortgage crisis.

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