Can you elaborate further, for those who don't know how derivatives do work?
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A derivative is just a packaged bet on some set of outcomes of some set of financial contracts. They can get very complicated, but a simple example is a call option, a contract that says, eg: 'I have the right to buy a share of Apple stock on 1/1/2020 for $400'.
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Note that the contract is worthless if the stock doesn't go over $400. If it hits $450, the contract is worth $450 - $400 = $50, etc. This MIGHT pay off thousands of dollars, if Apple discovers immortality drugs, but PROBABLY won't be worth anything (AAPL is $202.59 right now).
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Meanwhile, someone else might buy a 'put option', something that says 'I have the right to _sell_ a share of Apple stock on 1/1/2020 for $100'. Note that this probably won't pay off either, but even more to the point _it is impossible for both bets to pay off_.
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It's likely that neither bet will pay off, but it's literally impossible for both bets to succeed. And this is why it's completely insane to add up all derivative risks: most of them won't trigger, and many of them literally can't trigger in the same universe together.
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genius insightful people on twitter pontificating about derivatives / "the petrodollar" / "leverlage", etc. is the most tedious thing ever, in a world of tedious things
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Is that a challenge?
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Thank you.
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Bitcoin valuation
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ah woops
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For a large bank it'll mostly be interest rate swaps which end up paying out only a few % of the notional. In normal banking operations they will end up accumulating a lot of positions that cancel each other out. Total real world exposure is under 1% of that.
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. Banned in Sweden. SubGenius, Zhuangist, white-hat troll. Defrocked mathematician. Brain problems.