Using Financial Derivatives - Why Practice Makes Perfect And How Technology Can Help
Financial derivatives contracts are complex. They have embedded gearing, non-linearity and explosiveness.ST0-114 Warren Buffett referred to derivatives as financial Weapons of Mass Destruction with good reason. And yet, more positively, they offer a wealth of opportunities to manage risk and to gain exposure to markets both quickly 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 dedicated hours to poring over dry books explaining esoteric option theory or yield curve convexity. And then, invariably ill-prepared, they are launched into a live market trading environment, where mistakes are costly and inexperience is ruthlessly punished. Remember never to tell anyone in the financial markets that you are "new around here"! Historically, this was just seen as a rite of passage; a cost that financial firms viewed as simply part of the price of training staff. It also explains the wide gap between the re-numeration of the complete novice and the junior trader. Although they may have experience that only differs by a few months or a couple of years time-wise, the difference to the employer can be tens or hundreds of thousands of dollars in errors and mistakes.
Whenever possible, the best way to learn any new skill, no matter how complex, is through practice. From commercial airline pilots who spend hundreds of hours in flight simulators (throughout their career) to the child learning to play the violin by endlessly practising scales, it is human nature that efficient learning requires practical, personal experience. Learning from a book or, worse still, by sitting watching others, is a poor substitute for being in the driving seat.
And in this regard, training in the derivatives markets has lagged. The use of simulated trading environments in the cash or equity markets is common-place and has been for several years. But in the derivatives markets, the methods and technology have ST0-130not kept pace. There are several reasons for this, not least the complexity of the products involved. However, technology is now emerging that allows for any user of derivatives contracts to gain first-hand and realistic experience. This represents a huge leap forward at a time when derivative securities have transformed from a niche sector of the global financial markets to having an outstanding notional value of hundreds of trillions of dollars. For the modern finance professional, learning to use derivatives is now imperative as they constitute part of the standard tool-kit. The traditional method of teaching the use of derivatives was slow, expensive and weighted heavily towards theory and away from practice. Fortunately powerful technology has been created to overcome these limitations and to streamline the process of learning to use derivatives. This means professionals and students can learn how to use derivatives ST0-136faster and more thoroughly then ever before. And for financial firms, costly errors can be avoided and the need for expensive classroom-based learning can be dramatically reduced. As is true of all good technology, the benefits accrue in all directions.
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 dedicated hours to poring over dry books explaining esoteric option theory or yield curve convexity. And then, invariably ill-prepared, they are launched into a live market trading environment, where mistakes are costly and inexperience is ruthlessly punished. Remember never to tell anyone in the financial markets that you are "new around here"! Historically, this was just seen as a rite of passage; a cost that financial firms viewed as simply part of the price of training staff. It also explains the wide gap between the re-numeration of the complete novice and the junior trader. Although they may have experience that only differs by a few months or a couple of years time-wise, the difference to the employer can be tens or hundreds of thousands of dollars in errors and mistakes.
Whenever possible, the best way to learn any new skill, no matter how complex, is through practice. From commercial airline pilots who spend hundreds of hours in flight simulators (throughout their career) to the child learning to play the violin by endlessly practising scales, it is human nature that efficient learning requires practical, personal experience. Learning from a book or, worse still, by sitting watching others, is a poor substitute for being in the driving seat.
And in this regard, training in the derivatives markets has lagged. The use of simulated trading environments in the cash or equity markets is common-place and has been for several years. But in the derivatives markets, the methods and technology have ST0-130not kept pace. There are several reasons for this, not least the complexity of the products involved. However, technology is now emerging that allows for any user of derivatives contracts to gain first-hand and realistic experience. This represents a huge leap forward at a time when derivative securities have transformed from a niche sector of the global financial markets to having an outstanding notional value of hundreds of trillions of dollars. For the modern finance professional, learning to use derivatives is now imperative as they constitute part of the standard tool-kit. The traditional method of teaching the use of derivatives was slow, expensive and weighted heavily towards theory and away from practice. Fortunately powerful technology has been created to overcome these limitations and to streamline the process of learning to use derivatives. This means professionals and students can learn how to use derivatives ST0-136faster and more thoroughly then ever before. And for financial firms, costly errors can be avoided and the need for expensive classroom-based learning can be dramatically reduced. As is true of all good technology, the benefits accrue in all directions.
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