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mInvestor
User Rank
Iron
Re: Fine line
mInvestor   8/27/2011 3:18:02 PM
NO RATINGS
You are absolutely right, there is a fine line between hedging and speculating. But no matter what FED does, it won't drive out speculators. They have been our there fro thousands of years or not longer. It's might be one part of human natures, like or not like it.

 

Value Hiker
User Rank
Platinum
leverage & short term gain
Value Hiker   8/24/2011 11:25:40 PM
NO RATINGS
People playing derivatives often use high leverage to obtain reasonable gain. Furthermore, derivatives can hide big risk behind short term gains.  Playing derivatives for speculation purpose is often described as "picking pennies before a running bulldozer", you make small gains for a long time until you are hit by the bulldozer.

Scott Raynovich
User Rank
Blogger
Re: Fine line
Scott Raynovich   8/24/2011 8:31:11 AM
NO RATINGS
That is a great quote from Greenspan:

"What many critics of equity derivatives fail to realize is that the markets for these instruments have become so large not because of slick sales campaigns, but because they are providing economic value to their users."

What I can't go over is again and again for some reason people always believe Wall Street will "do the right thing" with dangerous, overleveraged products. And in fact, Wall Street always does the wrong thing with dangerous, overleveraged products. Case in point CDS and MBS products and the mortgage industry.

The big tragedy coming out of the 2008 crisis is that almost nothing has been done to put derivatives in open exchanges where there potential harm can be monitored more closely. Still a time bomb waiting to happen.

tokyogai
User Rank
Platinum
Fine line
tokyogai   8/24/2011 7:59:12 AM
NO RATINGS
I feel there is a fine line bewteen hedging and speculating. If we look at morkets like oil, the volume of speculation has become much larger than those that really are hedging. The speculation then starts to rule themarket and it becomes more like gambling and less like reducing risk. I feel some type of regulation is called for, but it is hard to see what type will drive the speculators out.





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