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Had An Interesting Discussion With An Ex-Regulator/broker About Derivatives.


lostone
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I learned a lot today in a class about option trades. They are so **** complicated yet regulated well. But those other types of derivatives where no one knows what kind of assets they are bidding for are nuts. Unregulated and dangerous. He told us about a book called American theocracy where the book draws parallels to all the great empires and their downfalls. Scary how great britian invested heavily in coal, but didn't see oil coming... Also 40+% of our GDP is in financial services... 40% is made by moving money around?! This is not sustainable. I know I am probably not doing the speaker justice, but he explained these crazy option trades and I was in awe with how people hedge against losses and make money.

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One thing I've never gotten is people investing in commodities. I wouldn't go near 'em personally and I put derivatives in that same category...

I was confused at first then I sort of got it at the end. The scary thing is people are fighting regulation of derivatives and know nothing about what quantities they own. They create devices on top of other devices...

If I explained to you some of the options trading they talked about then told you that it's the only type of regulates derivative.. Then told you it was the least complex... You'd look at me crazy.

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One thing I've never gotten is people investing in commodities. I wouldn't go near 'em personally and I put derivatives in that same category...

Why not? When you can control the market say for aluminum like Goldman Sachs does, it is easy money.

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Why not? When you can control the market say for aluminum like Goldman Sachs does, it is easy money.

Because the average investor isn't using insider trading and risking jail time and to the extent that they don't have that information, the risk far outweighs the reward...

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Because the average investor isn't using insider trading and risking jail time and to the extent that they don't have that information, the risk far outweighs the reward...

I think insider trading is a red herring, but I will say that most traders on Wall Street get information in real time, as opposed to those of us on Main Street that get it whenever a website updates us or cable decides to broadcast it. And by that time, even a few minutes later, it's already priced into the stock. In fact I think most investors are foolish to "trade" instead of "invest."

The amateur trader will never come close to reaching the efficiency that occurs on Wall Street. And in trading, it's all about timing and efficiency.

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I think insider trading is a red herring, but I will say that most traders on Wall Street get information in real time, as opposed to those of us on Main Street that get it whenever a website updates us or cable decides to broadcast it. And by that time, even a few minutes later, it's already priced into the stock. In fact I think most investors are foolish to "trade" instead of "invest."

The amateur trader will never come close to reaching the efficiency that occurs on Wall Street. And in trading, it's all about timing and efficiency.

Warren Buffet knew how bad derivatives were way back in 2002. It all came to a head in 2007-2008.

http://www.fintools....Derivatives.pdf

Yet, almost nothing has changed, so it'll happen again.

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I learned a lot today in a class about option trades. They are so **** complicated yet regulated well. But those other types of derivatives where no one knows what kind of assets they are bidding for are nuts. Unregulated and dangerous. He told us about a book called American theocracy where the book draws parallels to all the great empires and their downfalls. Scary how great britian invested heavily in coal, but didn't see oil coming... Also 40+% of our GDP is in financial services... 40% is made by moving money around?! This is not sustainable. I know I am probably not doing the speaker justice, but he explained these crazy option trades and I was in awe with how people hedge against losses and make money.

Yeah financials are a key sector. Maybe someone has written it or stated it previously, though I haven't seen it but it is my personal conviction that we cannot have a true economic growth and expansion without a healthy financial sector. It's not just the US though, Europe has been borrowing pages from our Central bank liquidty injection playbook as well. It's a bit of a learning curve, but I can attest that making money while in varying market conditions, even bearish markets is sweet. Good trading.

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I think insider trading is a red herring, but I will say that most traders on Wall Street get information in real time, as opposed to those of us on Main Street that get it whenever a website updates us or cable decides to broadcast it. And by that time, even a few minutes later, it's already priced into the stock. In fact I think most investors are foolish to "trade" instead of "invest."

The amateur trader will never come close to reaching the efficiency that occurs on Wall Street. And in trading, it's all about timing and efficiency.

I would agree in that if they are investors they should employ an investors methodology rather than a traders as they do differ. I happen to be both a trader and an investor (depending on the account I use). I consider myself to be more of a trader than investor, because I trade in that account more often. As a trader I don't care about the underlying fundamentals of a security. All I care about is what technical analysis tells me about price action. News or insider trading does not matter to me. As an example Green Mtn Coffee had a very nice run up about this time last year. At some point it was revealed that price had been driven up due to events within the company, After that was revealed to the public and some analyst downgrades the stock reversed sharply. I profited from trades in both directions without regard to what the news was.

In other words, I don't need to be more efficient or make better trades than Wall street traders. I only need to make sure than my winning trades exceed my losing trades - same as Wall st traders. So while they may have insider information which may help them gain greater returns, that information doesn't necessarily preclude losses on their part (and professional Wall St. traders do lose money). And while their losses are in the billions/millions mine are far less.

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One thing I've never gotten is people investing in commodities. I wouldn't go near 'em personally and I put derivatives in that same category...

Depends on whether you're gambling on short term options or long term holdings such as ETFs of actual physical possession. Many investment advisors recommend 10% in gold, but I personally believe in a 20% stake in commodities, doesn't have to be all gold.

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Depends on whether you're gambling on short term options or long term holdings such as ETFs of actual physical possession. Many investment advisors recommend 10% in gold, but I personally believe in a 20% stake in commodities, doesn't have to be all gold.

I'd recommend a 0% stake in commodities, all the formulas in the world don't include the emotional stress of risk. Gimme mutual funds with a nice long track record all day long...

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options trading is interesting... the fall asleep principle is crazy. I can make so much money by setting up options.... I can also lose a lot of money with options. You cannot miss your options deadlines are you completely lose everything on the option, yet you can set up options that will almost always guarantee you a profit. like betting within a 3 month period that a stock will go up or down and exercising those options will net you a profit everytime... at least that is regulated.

All the things that brought our economy to the brink are not regulated. But hey, who wants put our country ahead of profits.

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Because the average investor isn't using insider trading and risking jail time and to the extent that they don't have that information, the risk far outweighs the reward...

LOL, it wouldn't be near as bad if all they are doing is insider trading with aluminum.

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