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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?