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URL:  http://boards.fool.com/id-like-someone-to-explain-to-me-how-this-lowers-30688393.aspx

Subject:  Re: Derivatives rules -- loose as usual Date:  5/17/2013  4:35 AM
Author:  stenlis Number:  423091 of 455682

I'd like someone to explain to me how this lowers the risk to the entire system when 5 banks are buying and selling derivatives to each other.

Derivatives are not just about 'playing poker'. They can reduce risk. For instance, if you hold stocks in agricultural sector, you can also 'bet' against a good year in agriculture. It will make your gains lower if farmers have a good year, but also makes your losses lower if they have a bad one.

On the other hand, you can also double your risk by betting against a bad year - netting you double the wins or punishing you with double the losses.

Unfortunately it looks like the financial market is more inclined to do the latter increasing the volatility of the market.
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