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Politics

Economics: What is a derivative?

Best explanation I have read:

http://dealbook.nytimes.com/2009/10/07/dealbook-dialogue-lynn-stout/

For me, a financial derivative is like a “sidebet” at a poker game.

Sidebets are annoying because they are usually called for by loud and obnoxious players who have no patience to wait for the next round.

To put things into perspective. The US Economy is like a $3x$6 poker game that has people making $200 dollar sidebets. If you are familiar with 3×6 poker, usually $200 is your entire bankroll. If you are making $200 sidebets, you basically got your entire bankroll riding on one hand.

It doesn’t make any sense. You might as well be playing roulette.