I used to do a lot of the day trading and the stocks. I used to have the Ameritrade and trade options.
Life can be lived at a remove. You trade in futures, and then you trade in derivatives of futures. Banks make more money trading derivatives than they do trading actual commodities.
When you buy anything with lots of leverage, it does not require a whole lot to go wrong to lose it all.
Shorts wager on price declines by selling shares that they have borrowed in the hope of buying them back at far lower prices.
I didn't become interested in derivatives until 1982, 1983.
The options and futures traded on exchanges are derivatives contracts.
Short sellers sell stock they have borrowed, hoping to buy it back later when its price has fallen.
When you look at a commodities market you need hedgers and speculators. If you don't have one, you don't have a market. That's how it works.
MF Global used to be known as Man Financial, and it had a reasonably good reputation. It did a humdrum business placing commodities trades for fund managers as well as farmers, grain dealers and others whose livelihoods depend on the vagaries of commodity prices.
Excessive hype, bankruptcy, cash burning like autumn leaves - such is the stuff of short-selling.
Derivatives in and of themselves are not evil. There's nothing evil about how they're traded, how they're accounted for, and how they're financed, like any other financial instrument, if done properly.
You can no longer buy commodities at Merrill Lynch. My guess is many analysts and even executives are too young to know how profitable a hot commodities market can be. They will soon.
A futures contract is a derivative, but the futures exchange doesn't call them 'derivatives,' they call them 'futures.'
My dad used to sell a type of commodity contract. It was so complicated, he was certain his sales people didn't understand what they were selling.
It is an extreme perversion of capitalism if you can trade in something before you have even paid for it.
In the 1920s you could buy stocks on margin. You could put 10 percent down and borrow the rest against your stocks.
Derivatives are a huge, complex issue.
Frankly, if you can sell something at $80 a tonne that cost you $20 a tonne, you might want to sell as much as you can.
I play with leverage.
The key thing when you short is to make sure you're not wrong on the fundamental intrinsic value.
