#4: What do derivatives stick to?

 

Recording Fat Wallet #4. I finally stump @simon_brown_za in this one!

A photo posted by Kristia Van Heerden (@k_r_isis) on Jun 15, 2016 at 3:21am PDT

 Sometimes it seems like derivatives exist simply to vex me. I know, academically, that the world doesn't revolve around me, but seriously derivatives: what the hell? In this episode of The Fat Wallet, I reach for that eureka moment. Then I stop reaching because injuries are a real risk.

I've been trying to get at derivatives for about four years. Brilliant Lauren Bodington from 28E Capital once spent what must have been a long, frustrating hour explaining the bare bones. I thought I was pretty smart after that conversation, but every time I add a single new fact, my tower of knowledge crumbles like this metaphor.

Here's what I know: futures contracts are the easiest derivatives products to understand. They are contracts to buy something at a set price at a future date. Their slightly more nasty cousins are contracts for difference (CFDs). Those are bets on what the price of something is going to be at some future date. Warrants, options and swaps were on the list of things I wanted to talk about, but they are so ugly I didn't even look at them. They'll get their own episodes once I muster the energy.

For now, brace for impact.

Kris