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Comment by HWR_14 | Hacker News Reader

Financial speculation can serve some useful purposes. If two months ago I worried that a shooting war between the US and Iran could start and adversely affect my stocks, I can use it as a hedge to isolate that risk factor. If I wanted to make money by insuring those hedges I could.

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You can build hedges with sports betting, as mattress mack famously does [0].

[0] https://www.chron.com/culture/article/mattress-mack-super-bo...

If profit is the measure of utility, then gambling is just as useful: a winning bet makes you a profit or reduces your overall losses (depending on how you view it). But fundamentally you are making a bet that some future dice roll will go your way. It is still gambling.

But how do these hedges map to actual wealth? By the power of your stocks, you were entitled If a certain share of steel, gasoline and human labor. Now if a part of this share is burned with no gain, how can playing with casino chips recover the loss?

Market works well on non-correlated risky affairs with a positive expectation (i. e. Age of Discovery marine trade, where it all started). It can't do anything about a fundamentally negative-sum game.

Just like other forms of insurance, you pay a small amount regularly to avoid a large loss. Saudi Aramco stock gives you dividends of X, you regularly pay Y% for insurance in case the Straight of Hormuz closes. When it does, you get the same income. Obviously, that amount will be less than X. Other people, who don't own Saudi Aramco stock make a small amount of money regularly and occasionally have large losses. Ideally, they make a lot of uncorrelated bets and so they are always making a bit of cash on 99% of contracts so they can afford the losses on the 1%.

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