Derivatives are one of the most important financial innovations in history, but they are often misunderstood. They are securities whose value is determined by or derived from other underlying assets like shares, land among others.
Derivatives can help stabilize the economy or bring the economic system to its knees in a catastrophic implosion due to an inability to identify the real risks, properly insure against them, and anticipate so-called “daisy-chain” events where interconnected corporations, institutions, and organisations find themselves instantaneously bankrupted as a result of a poorly written or structured derivative position with another firm that failed; a domino effect.
