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RE: Is This Why Charlie Lee Sold His Litecoin?
I never completely understood derivatives and comodities. I feel like I need a second degree in economics for that :))
I never completely understood derivatives and comodities. I feel like I need a second degree in economics for that :))
derivative just means "BASED ON" ---- the Bitcoin Futures are a derivative as there is no Bitcoin backing it, it is settled in US $..... A Future is a "BET" (think Las Vegas) on what you believe the price will do in the future. COMMODITIES are physical goods(normally) that people compete over by offering a price.
Okay so derivatives and futures are the same or derivatives include futures but not only?
If the FUTURES "settels" with the underlying commodity its NOT a derivative.
for instance if you mine gold and you want to LOCK in your sales price, you sell a FUTURES contract for the date you want to sell it,,, when the Futures Contrace expires you DELIVER the GOLD
But a Bitcoin Future is a DERIVATIVE because when you settle the contract you dont pay Bitcoin,, it settles in US Dollars. --- so the Contract price is "DERIVED" from Bitcoin - hence its a Derivative.
In the past Futures were almost never derivatives, they were a way for compoanies to FIX their costs so they could do good accounting.
DERIVATIVE markets don't need an underlying commodity,,,, for example the GOLD derivatives markets have a value of some 10-100 times the amount of GOLD that exists in the world,,,, its just "Paper Gold" or better said,,, just a bunch of people "BETTING" on what the price of GOLD with be.
DERIVATIVES - means Las Vegas on Wall St.
FUTURES - means FIXING your COSTS or PURCHASE PRICE
Wow, thanks a lot for the detailed information, I really feel more confident about it!
Derivative markets can be:
Futures
Options - (options are used as INSURANCE POLICIES or "hedges" on one's bets)
INDEX funds (that derive their value from the underlying stocks)
etc.