In a discussion of what investments have the best return, the hidden world of derivatives makes a strong case to take the title.
It may sound like a very complicated term, belonging to the jargon list of the world of finance and economics, but derivatives in action are nothing more than underlying processes of turning base funds into bigger denominations, via the process of gearing in a credit transaction.
A lot of money, which is in circulation in the world, does not exist physically but rather exists in the electronic world. This money exists only on computer screens and on automated teller machine screens and this is the modern-day fiscal system which is very different to that of times gone by, where every dollar in circulation was represented by a physical asset in federal reserve banks.
But what does all of this mean to someone who wants to get the best return on investment from their endeavors?
It’s very simple really, in concept at least, but it can be put into practice and you can get a lot of capital gains out of this concept.
Because of this flawed system of managing the world’s finances, an illusion of scarcity is promoted by the big banks of the world and this illusion trickles down to all subsequent financial institutions and eventually infiltrates the market.
This scarcity is nothing more than propaganda though, as there is actually an abundance of money doing the rounds in the world, especially since the world has become more of a globalized place and most of the money exists in digital format.
If the entire world went digital and only used electronic money, there would never be a shortage of money, in any place on earth, because the world of digital currencies doesn’t deal in the here and now — it deals with promises of future payment.
Think about it — if you log into your internet banking account and you have a certain amount of money on your screen, as your balance, is that money physically in your possession?
No it isn’t and, if you transfer some money to someone else’s account, you are effectively handing them an I OWE YOU, which is secured and guaranteed by your bank. You are essentially handing your payee a promise that your bank will pay them their money whenever they need to withdraw it and this is where the derivatives market makes a killing.
If the person you have “paid” does not physically draw the money now appearing as a promise in their account, and decides to go the same route as you, transferring some of it electronically to someone they owe, the cycle repeats itself and the original amount of physical money is now geared into a lot more of electronic money.
How do you take advantage of this though?
If you have money to invest, get into the business of money, which is the underlying business of any setup that offers products and services, but also offers credit to its clients.
If you have a facility where you can offer credit to anyone, provided you are sure they can pay it back in future, you can make use of the process of gearing in the derivatives market and sell futures to other creditors.