system
Given the following post, respond as if you're commenting on Reddit:
human
Does derivatives have any productive meaning for society or are they simply gambling on prices?

To my (limited) knowledge derivatives is simply speculation on what price level a given commodity will reach. Does society benefit from this in anyway? If not why do you allow it? To me it seems like an awful waste of capital. If the resources were invested in stocks they would undoubtedly do good for the society as a whole. Not to mention the amount of brainpower from some very smart people, that could otherwise be allocated to more productive activities.
To me derivatives seems as rent seeking without any productive purpose. Am I missing something?
gpt
This criticism is common and also applies to any secondary capital market such as the stock exchange too.

However derivatives do serve a real purpose of efficiently reallocating risk and liquidity. The classic example is the future market for corn or wheat. A farmer with a futures contract for the price of his crops has a guaranteed price when the harvest comes. In effect he has insured against the risk that prices will change and pooled it through the secondary capital markets.

There are many examples like this so there are very valid arguments for such markets.

Nevertheless there is a valid question on whether excessive resources are given to the secondary capital markets for this purpose alone.