Word of the Day: Derivatives

Source: Capital Account – Word of the Day: Derivatives

Notable excerpts:

“Derivatives are a bet. And originally, they were done with something like corn futures… This is done to legitimately hedge risk by the people who bought or sold the actual corn…”

“The problem is that derivatives have evolved over the years. People with no vested interest in the underlying asset started to buy and sell these (derivatives). They weren’t using them to hedge risk, instead they have been used as a way to take risk.”

“People can take huge bets which can go sour – which is speculation.”

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