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many users of derivatives willingly lose money on them because the purpose of these contracts is to transfer risk to those willing to hold it.


Money is the thing at risk.


People are willing to lose a small but predictable amount of money to avoid occasionally and unpredictably losing a massive amount of money. The former is a loss they can plan for and absorb. The latter might kill their business.

Traders are often happy to take the other side of that trade because they can trade against many counterparties, collect a small premium from each one, and try to ensure their counterparties won’t all fail in a correlated way.


Yes, it's not about onions.


The thing you’re missing:

Would you rather have net profits of 20, -10, 15, -5, -10, 25, -5 year over year, or profits of 4, 4, 4, 5, 4, 5, 5?


In what sense is “profits” not referring to money?


Did you reply to the wrong comment? I said nothing of the sort.

Your hung up on money, everyone is trying to explain that the exact same money is better when it is predictable versus erratic.


the exact same money

Yes, it is about the money.


You may have liabilities or income that exist outside of financial markets e.g. if I have 500t of wheat due to be harvested I might want to hedge enough to guarantee I can pay my staff - ive locked in the price of wheat, I might make less money as a result but my risk is lower.


Wheat futures trading rarely involves any actual wheat.

And rarely is done by farmers.


Is insurance risking your money?


Yes of course. I’ve paid for car insurance for 30+ years and have never made a single claim. So far, for me, it’s a bad risk.

I’ll keep paying though.




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