If I had to point out the most dangerous type of derivatives in the world, I would tell you without hesitation: it is the contracts in the crypto space. How dangerous is it? I am already very familiar with leveraged trading, so familiar that I feel uncomfortable going back to stocks — but even so, I would never touch crypto contracts. Because their leverage has completely exceeded the boundaries of reasonable volatility.
Once ultra-high leverage meets illogical violent fluctuations, trading venues will completely degenerate into casinos.
And casinos never look at educational background. The gambling nature is a sharp blade inherent to human nature, easily piercing through the armor of higher education. Graduate students, PhDs, 985, 211 — in the face of risk, all halos disappear. Many people lack even basic risk assessment and management skills, yet dare to go all in on the contract battlefield. What’s even scarier is that the KOLs in this circle are highly overlapping with idols from the 85-00 generation. For example, Jay Chou, for example, Li Xiaolai... They not only fail to convey rational voices but also push a large number of young fans toward the gambling table.
If you come from a non-financial background and want to get in touch with derivatives, I advise you to take it step by step:
Step one, first understand 'non-leveraged trading'. I recommend looking at the Dow Jones index. It has high liquidity and transparent information, suitable for beginners to feel what market volatility is. The S&P 500 and Russell 1000 are also acceptable. The key is to establish a basic understanding of the market at this stage.
Step two, understand 'leverage + forward pricing'. The best object to observe is crude oil. It not only introduces a time dimension in pricing but also has more complex factors — starting from 2024, its financial attributes and macro impacts may even exceed supply and demand itself. It is very suitable for outsiders to expand their thinking.
Step three is options. I recommend starting with options for star stocks like Tesla, Meta, and Nvidia. Don't touch index options at the beginning; the price logic of individual assets is clearer. Many people mistakenly believe that options are an IQ tax, a mystical gambling tool — which is completely wrong. The education on derivatives in the Chinese internet is almost zero; most people haven’t even understood futures, let alone options. But in fact, options are extremely elegant risk management tools, very Old Money, very academic. However, you must first learn how to use them.
I am Xiao O, a professional analyst and teacher, a mentor and friend on your investment journey! As an analyst, the most basic thing is to help everyone make money. I will help you solve confusion, manage positions, and speak with strength. When you lose your direction and don’t know what to do, follow Xiao O, and I will point you in the right direction.
