Monetary derivatives contracts are complex. They’ve embedded gearing, non-linearity and explosiveness. Warren Buffett referred to derivatives as monetary Weapons of Mass Destruction with good reason. And yet, much more positively, they offer a wealth of opportunities to manage risk and to acquire exposure to markets each rapidly and cheaply.
Traditionally, the use of derivatives is taught in the classroom or straight out of the text book. MBA students, junior traders, risk managers and brokers have all devoted hours to poring over dry books explaining esoteric choice theory or yield curve convexity. And then, invariably ill-prepared, they’re launched into a live market trading environment, exactly where mistakes are pricey and inexperience is ruthlessly punished.
Keep in mind never to tell anyone within the financial markets that you are “new around here”! Historically, this was just seen as a rite of passage; a price that monetary firms viewed as simply component of the cost of training staff. It also explains the wide gap in between the re-numeration of the total novice and the junior trader. Even though they may have experience that only differs by a couple of months or a couple of years time-wise, the distinction to the employer may be tens or hundreds of thousands of dollars in errors and errors.
Whenever feasible, the very best method to learn any new skill, regardless of how complex, is through practice. From commercial airline pilots who invest hundreds of hours in flight simulators (all through their career) towards the child learning to play the violin by endlessly practising scales, it’s human nature that effective studying demands practical, individual experience. Learning from a book or, worse nonetheless, by sitting watching other people, is really a poor substitute for becoming within the driving seat.
And in this regard, training within the derivatives markets has lagged. The use of simulated trading environments in the money or equity markets is common-place and has been for several years. But within the derivatives markets, the methods and technology have not kept pace. There are a number of reasons for this, not least the complexity of the products involved.
Nevertheless, technology is now emerging that allows for any user of derivatives contracts to acquire first-hand and realistic expertise. This represents a huge leap forward at a time when derivative securities have transformed from a niche sector of the global monetary markets to having an outstanding notional value of hundreds of trillions of dollars. For the contemporary finance expert, studying to use derivatives is now imperative as they constitute component of the regular tool-kit.
The conventional method of teaching the use of derivatives was slow, expensive and weighted heavily towards theory and away from practice. Fortunately powerful technologies has been created to overcome these limitations and to streamline the process of studying to use derivatives. This indicates professionals and students can learn how to use derivatives faster and more thoroughly then ever prior to. And for monetary firms, costly errors can be avoided and also the need for expensive classroom-based learning can be dramatically decreased. As is accurate of all great technology, the advantages accrue in all directions.commercial airline pilots, derivatives markets, Financial, financial derivatives, Learn, learning to play the violin, Technology, theory, use, wide gap