Derivatives Made Simple

Few fully understand derivatives. So politicians misuse them for their purposes.

Derivatives are a financial necessity as a a form of side bet that helps reduce the risk of a financial transaction. It’s a device that has been in use by commodity merchants for over a century and a half. It protects investors against the possibility the price trend of an original investment goes wrong. It’s perfectly legal and ethical.

Some simple derivatives are easily listed on an exchange. And they contain collateral in case of a market downturn. But not all derivatives can be worded simply. Some say, only bankruptcy courts can handle their settlement.

So forget the diatribes against investment firms who write derivatives and are on both the buy and sell side at the same time. It’s reasonable.

Politicians and media who are ignorant of the process are deluding the public by carrying on about derivative fraud. ( See the Earl J. Weinreb NewsHole® comments.)