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FCA bans sales of crypto-derivatives to retail consumers

15 points by csomar 6y ago

madamelic 6y ago
"You're too stupid to understand this, leave this to the big kids who will get over-leveraged then need to be bailed out, by you."
drcongo 6y ago
Serious question, as I'm probably extremely naive about these things - but why not just ban derivatives trading altogether? Does it bring any good to the world or is it just gambling for people bored of horse racing?
- deleted 6y ago
  [deleted]
- seanhunter 6y ago
  There are lots of real-economy uses for derivatives. The classic example comes from the origin of derivatives - to forward-hedge risks in commodities. Say I am a farmer. I buy seed and 9 months later wil harvest my crop and sell my produce. So I am very exposed today to the price where I will be able to sell my crop at this future point in time. In ancient Babylon they came up with the idea of what we would today call a physical commod forward to hedge this risk. The farmer sells a contract today promising to deliver the crop they will harvest in nine months time. This gives them price certainty so they are able to invest today in the seed to grow this crop. Most derivatives have a similar real-world risk mitigation function and to compensate people for taking the risk, the other side of these trades has a speculative profit potential. There have been numerous studies on the effect of derivatives (and the absence of derivatives) on the markets in the underlyings. Generally the presence of a derivs market tends to reduce volatility in the underlying. For example in the US futures trading in onions is not allowed (for historical reasons) so there are studies comparing the market in onions to similar agricultural products with a derivs market. Edit: note I'm talking about "normal" derivs here, ie derivatives of Equities, fixed income, currencies or commodities. I don't have any experience of cryptocurrencies or derivs of them nor do I have an opinion on the value of derivs of cryptocurrencies.
  - drcongo 6y ago
    Big thanks, that's a useful explainer.
uzero 6y ago
Good luck enforcing this with DeFi.
alexbiet 6y ago
Yet the lottery is widely available to retail consumers.
- dogma1138 6y ago
  Lottery in the U.K. is essentially a non for profit about half of the proceeds go to the winners, a quarter goes to charitable causes set by the parliament, ~15% is a duty that goes to the government and the rest is used to cover the operational costs, retailer commissions etc. Camelot, the operator can only draw on 1% of the proceeds for profit. If derivatives traders are willing to adopt this business model I’m sure the FCA will reverse the ruling.
flyingfences 6y ago
Since the article doesn't bother to state this: "FCA" is the "Financial Conduct Authority" in the United Kingdom.
- csharptwdec19 6y ago
  Thanks. I was really worried the Auto industry was about to go through a Blockchain hype cycle.

15 points by csomar 6y ago

"You're too stupid to understand this, leave this to the big kids who will get over-leveraged then need to be bailed out, by you."

drcongo 6y ago

Serious question, as I'm probably extremely naive about these things - but why not just ban derivatives trading altogether? Does it bring any good to the world or is it just gambling for people bored of horse racing?

deleted 6y ago
[deleted]
seanhunter 6y ago
There are lots of real-economy uses for derivatives. The classic example comes from the origin of derivatives - to forward-hedge risks in commodities. Say I am a farmer. I buy seed and 9 months later wil harvest my crop and sell my produce. So I am very exposed today to the price where I will be able to sell my crop at this future point in time. In ancient Babylon they came up with the idea of what we would today call a physical commod forward to hedge this risk. The farmer sells a contract today promising to deliver the crop they will harvest in nine months time. This gives them price certainty so they are able to invest today in the seed to grow this crop. Most derivatives have a similar real-world risk mitigation function and to compensate people for taking the risk, the other side of these trades has a speculative profit potential. There have been numerous studies on the effect of derivatives (and the absence of derivatives) on the markets in the underlyings. Generally the presence of a derivs market tends to reduce volatility in the underlying. For example in the US futures trading in onions is not allowed (for historical reasons) so there are studies comparing the market in onions to similar agricultural products with a derivs market. Edit: note I'm talking about "normal" derivs here, ie derivatives of Equities, fixed income, currencies or commodities. I don't have any experience of cryptocurrencies or derivs of them nor do I have an opinion on the value of derivs of cryptocurrencies.
- drcongo 6y ago
  Big thanks, that's a useful explainer.

uzero 6y ago

Good luck enforcing this with DeFi.

alexbiet 6y ago

Yet the lottery is widely available to retail consumers.

dogma1138 6y ago
Lottery in the U.K. is essentially a non for profit about half of the proceeds go to the winners, a quarter goes to charitable causes set by the parliament, ~15% is a duty that goes to the government and the rest is used to cover the operational costs, retailer commissions etc. Camelot, the operator can only draw on 1% of the proceeds for profit. If derivatives traders are willing to adopt this business model I’m sure the FCA will reverse the ruling.

flyingfences 6y ago

Since the article doesn't bother to state this: "FCA" is the "Financial Conduct Authority" in the United Kingdom.

csharptwdec19 6y ago
Thanks. I was really worried the Auto industry was about to go through a Blockchain hype cycle.