"Derivatives are financial weapons of mass destruction"

Warren Buffett's quote about derivatives is a cautioning about the prospective dangers of buying these intricate financial instruments. Derivatives are agreements in between 2 celebrations that derive their value from an underlying property, such as stocks, bonds, products, or currencies. They can be used to hedge versus risk or to speculate on the future cost of an asset. However, they can also be highly leveraged, meaning that a small investment can lead to large losses if the market moves versus the investor. Buffett's quote is a pointer that derivatives can be exceptionally dangerous and can trigger substantial losses if not utilized thoroughly. He thinks that derivatives can be "financial weapons of mass destruction" if not used properly. For that reason, it is important to understand the risks related to derivatives prior to investing in them.