How are derivatives different from bucket shops?
"How are derivatives like covered warrants or CFDs different from the bucket shops that were made illegal in the US? After reading up a little on the topic, the core difference seems to be that bucket shops were basically running betting pools, with everyone betting against the operator, whereas CFDs and similar derivatives are traded between speculators and the operator merely provides a market and checks the liquidity of participants. A CW seems to be a different matter that I'm not fully sure I understand (at least the description of Wikipedia seems to contradict your statement about not trade being performed on the underlying security). Should I worry that some regulator decides that my ""market maker"" is an illegal gambling operation? Not really. Nations with a mature financial industry (like Japan) invariably have heavy regulations that mandate constant auditing of institutions that sell financial instruments. In Japan, the Financial Services Agency is in charge of this. It's almost impossible that they would let an institution operate and later decide that its basic business model is illegal. What is possible are mainly two scenarios:"
"Thank you for misunderstanding:  &gt;then I shudder to think what an explanation of how the price of money can be derived from plotting IS and LM together and extending it's meeting point into the money market to determine the price of currency would do to your notion of control by powerful offices in government.  and embarking upon the very rant I knew you had in you.  I am well aware of the Federal Reserve's purpose of controlling the money supply, as is everyone else.  You are literally the last one to the party.  Your mistaken feeling of superiority is derived from a position of complete ignorance.    Your shock and outrage at the most simplistic of economic facts that have been the foundation for understanding international economics since the cold war represents a massive twisting of self education: you have wrested your way out of the dark pit of complete ignorance by reading up on how the economy works, but in a sorrowful twist you have learned this information from biased sources, perhaps the ""Abolish the Fed"" folks putting around, and instead of taking steps forward into understanding the world of finance you have flipped your lid and assume that you have somehow become Neo in The Matrix and have taken on a faux-intellectual persona in a desperate attempt to assert an identity of superiority over the masses of far more educated people around you who do not react with shock and outrage to things they already knew.  **TLDR: You are just a smug asshole who has reacted to basic facts about the economy by incorporating them into making more credible tinfoil hat conspiracy theories, and I hate people like you because you distract from legitimate criticism of the international banking system by acting shocked by what you learned in Economics 101.**" It’s also not coming out of the revenue from Amazon, ie money that could be used to pay workers. It’s stock that derives it’s value from what other people are willing to pay for it.   The Huffington post piece is ignorant of how the world works. "My feeling is that you're basically agreeing to throw away a bucket of money for a lesson that doesn't have to cost a penny. Like another commenter said, you're putting the cart before the horse.  I once asked a similar question to a seasoned investor, though I wasn't in the position to toss my hard-earned cash into the well yet. He told me that the difference between the winners and losers is that the winners don't need the money. I'm not trying to say that there's a ""rich keep getting richer ..."" component here, while schlubs like me get nada.  The real nugget of wisdom he offered was that if anyone wants to do well as investors, we must invest in a way that we're not dependent on the money we have in the market. Instead, manage risk carefully so that you don’t get swept up in the emotional highs and lows.  For you, what I applaud is that you're willing to do your research first. And part of that should be anticipating how you will handle the anxiety when you put your money in at the wrong time or get out a little later than you should.  What I understand now is that you don’t need to be wealthy to “not need the money.” You just need to invest smartly and leave your emotions out of it." Its' a smart thought to play out your own one of a kind research on which wooden ground surface companiesis the absolute best for you rather than just suspecting what others say to you. You can make a rundown of the considerable number of shops in your general vicinity and gather however much insights about each of them as could reasonably be expected. You can ask about the things they offer and their rates notwithstanding the administrations they give. You can truly look at posts like news items or magazine short articles about such shops close you. Not only that anyway you can in like manner look at stories on these shops from different clients. Not to be flippant, but I hope you're asking for llfinance to cover stochastic calculus on his blog, and not for someone here to give you a primer on it.  If you like, I can give you an explanation for why stochastic calculus has to be different from regular calculus. "There are normally three key factors that define different kinds of loans, these factors affect the risk that the lender takes on and so the interest rate. The interest rate on any loan is linked to market interest rates; the lender shouldn't be able to receive a higher rate of interest for lending the money at no risk, and the level of risk that the lender believes the borrower to have. The three features of a particular loan are: These reduce the risk of complete or total non-payment (default) of the principal or any missed interest payments. Taken in order: Amortising Here some of the monthly payment pays a proportion of the underlying principal of the loan. This reduces the amount outstanding and so reduces the capacity for default on the full principal as part of the principal has already been paid. Security In a secured loan there is an asset such as a car, house, boat, gold, shares etc. that has a value on resale that is held against the loan. The lender may repossess the security if the borrower defaults and recover their money that way. This also acts as a ""stick"" using the loss of property to convince the borrower that it is better to keep paying the interest. The future value of the security will be taken into account when deciding how much this reduces the interest rate. Guarantor A guarantor to a loan guarantees that the borrower will repay the loan and interest in full and, if the borrower does not fulfil that obligation, the lender is able to seek legal redress from the guarantor for the borrower's debts. Each of these reduce the risk of the loan as detailed and so reduce the interest rate. The interest rate, then, is made up of three parts; the market interest rate (m) plus the interest rate premium for the borrower's own credit worthiness (c) minus the value of the features of the loan that help to reduce risk (l). The interest rate of the loan (r) is categorised as: r = m + c - l. Credit ratings themselves are an inexact science and even when two lenders are looking at the same credit score for the same person they will give a different interest rate premium. This is mostly for business reasons, and the shape of their loan book, that are too tedious to go through here. All in all the different types of loan give flexibility at the cost of a different interest rate. If you don't want the chance of your car being repossessed you don't take a secured loan, if you have a family member who can help and doesn't mind taking on your risk take a guaranteed loan." "First, please allow me to recommend that you do not try gimmickry when financials do give expected results.  It's a sure path to disaster and illegality.  The best route is to first check if accounts are being properly booked.  If they are then there is most likely a problem with the business.  Anything out of bounds yet properly booked is indeed the problem. Now, the reason why your results seem strange is because investments are being improperly booked as inventory; therefore, the current account is deviating badly from the industry mean. The dividing line for distinguishing between current and long term assets is one year; although, modern financial accounting theorists & regulators have tried to smudge that line, so standards do not always adhere to that line. Therefore, any seedlings for resale should be booked as inventory while those for potting as investment.  It's been some time since I've looked at the standards closely, but this used to fall under ""property, plant, & equipment"".  Generally, it is a ""capital expenditure"" by the oldest definition.   It is not necessary to obsess over initial bookings because inventory turnover will quickly resolve itself, so a simple running or historical rate can be applied to the seedling purchases. The books will now appear more normal, and better subsequent strategic decisions can now be made." The opposite of a hedge is leverage (aka gearing). A hedge is where you spend money to reduce your exposure. Leverage is where you spend money to increase your exposure. Spread bets are a form of leverage - that's what makes them such an effective way to lose all your money, quickly.