It depends entirely on the purpose of owning the derivatives for the individual fund. [disclaimer: I manage a hedge fund]. First, there are many kinds of derivatives. The futures market is larger than the stock market. Those futures contracts are used for many purposes - primarily to transfer risk.
Admittedly, there are firms like the one in the article that use derivatives in a very risky manner. I objected primarily to the title, which painted dire consequences to all hedge funds. This was a small event in the grand scheme of things.
best, ampu
Thanks, and I hope you'll chime in now and then on these financial shennanigans threads. If you do, please ping me.
A good post. If one is truly hedging, he is essentially locking in a known profit. If one is seeking to profit, then he is simply speculating.
Producers and distributors fall into the hedge category. These are the pros, although occasionally greed may get the better of them, as happened to one grain distributor who had already sold his wheat but held on to his short wheat position, feeling that surely the price of wheat would drop and he would further profit. The guy ended up bidding wheat to a new record high of $10.00 a bushel before they let him off the hook. Ooops!