Life can be lived at a remove. You trade in futures, and then you trade in derivatives of futures. Banks make more money trading derivatives than they do trading actual commodities.
Sentiment: NEGATIVE
The trade of banks is the buying and selling of interest and exchange.
The options and futures traded on exchanges are derivatives contracts.
The price of a commodity will never go to zero. When you invest in commodities futures, you're not buying a piece of paper that says you own an intangible piece of company that can go bankrupt.
A futures contract is a derivative, but the futures exchange doesn't call them 'derivatives,' they call them 'futures.'
Financial institutions like to call what they do trading. Let's be honest. It's not trading; it's betting.
When they are employed wisely, derivatives make the world simpler because they give their buyers an ability to manage and transfer risk.
Remember that banks aren't markets. The market is amoral. The market doesn't care who you are. You're a trade to the market. The market will sell you if they think you're riskier.
The marginal people on the trading desks, there's no skill set. If they don't trade derivatives, I don't know what they can do. The next stop is driving a cab.
An unregulated derivatives market essentially gives Wall Street a way to place hidden taxes on everything in the world.
Every regulatory speech on derivatives takes a bow to their hedging 'benefits.' Less publicly, regulators pay their respects to derivative profits, a blessed relief from the banks' troubled loans to less-developed countries, highly leveraged companies, and real estate swingers.
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