What role does Equity theory play in the new system?

Is there a real need for complex financial instruments such as CDSs, options, and futures?

• Has there been a study which has proven that there is demand supply rationalizations owing to future, options or it has been more in theory? The other aspect of this is high-freq trading or algorithmic trading, what role does it play in a secular market environment which ideally was meant to have investors cheering great entrepreneurs, companies thus buying equity of that particular company and gaining wealth in the process. What is the modified definition of value investing in a high-freq trading scenario?

• Answer:

  Options and futures are not complex at all.  CDS's are a bit complex. But asking whether they are needed or not is the wrong question.  Once you have a financial system and unless you put in draconian regulations, then you are going to get options and futures and CDS's. So the question is whether or not they are socially harmful enough to put in the draconian regulations necessary to ban them, and whether those regulations will end up being worse than the derivatives themselves. Also HFT is extremely useful for value investors because it means that you can sell your holdings cheaply and easily.