In its simplest form, a derivative is a bet. And the wager can be on almost anything: stocks, commodities, currencies, exchange rates, interest rates, etc.
Austin, Texas (PRWEB) July 25, 2012
In May, the financial world was up in arms after JP Morgan Chase Bank announced a $2 billion dollar loss (which is now closer to $5.8 billion) in its trading division. This loss wasn't a traditional stock market loss, so what was it? EVG Exposed has released a report that answers the question 'Should You Trust Wall Street?' by analyzing the derivatives market. To read the report, click here.
"In its simplest form, a derivative is a bet," says Bob Samms, editor of EVG Exposed. "And the wager can be on almost anything: stocks, commodities, currencies, exchange rates, interest rates, etc. Heck, you can even bet on the weather! For example, farmers might use weather derivatives to hedge against poor harvests caused by drought or frost. That’s using a derivative as a risk-limiting hedge."
Can these simple types of bets really cause that much damage to a bank that is too big to fail? Back in 1995, Barings Investment Bank, a bank that had been in existence for more than 220 years, was brought to its knees through derivatives. So why are derivatives so popular?
"Well, the returns can be fantastic … if you get it right," continues Mr. Samms. "For example, hedge fund manager John Paulson earned $4.9 billion in 2010. All by betting on the right side of derivatives. And trader Bruno Iksil, the so-called 'London Whale' responsible for the huge trading losses at JP Morgan, used the same derivative-trading techniques between 2007-2010 to net his bank $2 billion in gains. That’s why he likely became overconfident with this trading methods."
What is a derivative and what is a smarter way to invest? To view this free report, visit http://elevationgroupexposed.com/Wall-street.