Derivatives are definitely not the panacea for bad trading or poor strategy...and can be a fountain of losses. That said, I do think think understanding derivative pricing is critical to market understanding, even if you never intend to trade them. That is a worthwhile endeavor and should prove useful knowledge. /my2vegas
Are you talking about arbitrage? On a small scale, it does exist. On a large scale, you have to look at what happened to LTCM. Note: Traders have been able to create fortunes long before derivatives were invented. So derivative is not the key to the rabbit hole.
I want somebody to prove that risk free trading is impossible. I want an argument that would pass muster in Philosophy 101 [wherein we that aren't know-it-all-idiots learn that proving something is impossible is not doable]
Not provable. Which is why it's impossible. Same reason you injected "idiot" into the argument, to imply ignorance and conjecture on my part. Fair enough. You've bled and sacrificed during your market experience. Ever considered that you're just average due to your textbook yellow brick road formulaic pursuit of trading success? Or maybe you just have that personality flaw that substitutes insults for inquiry and discussion. Ever heard of the Economic Fractalist Gary Lammert? If not you should check out his blog (not his website, years outdated) for his posts. EXTREMELY intriguing. Carry on fractal boy...
OP, read Fooled By Randomness by Taleb. Taleb provides the insight that when it comes to traders, because the sample size is so large, it is impossible to attribute a traders success to skill as opposed to mere random chance (mere coincidence). Keep this in mind when reading about case studies or stories of wildly successful traders. Taleb even argues that the greater the success of the trader the more likely the success is mere coincidence than skill or knowledge. That doesn't mean all successful trading is due to randomness, but when studying other traders, it's impossible to assess if they are truely talented traders or merely lucky. Risk free returns are not accessable to the retail trader. Humans are unpredictable and driven by emotion, and due to this unpredicatable nature there will always be risk. As long as others maintain an influence on the price of whatever you are trading there is risk.
From the experience of LTCM: So, the predictable risk for risk-free returns could be unpredictably risky! Or, the unpredictable risk for risk-free returns could be predictably risky!
Since you mentioned Philosophy, it begs the question, do you understand it? You should know full well you can't disprove a negative. You hinted it, but do you really understand why that is? You can't prove risk free trading doesn't exist. You can only find evidence for it's existence, and when you come up empty handed the intelligent person concludes that based on what we know of the world we live in, the complete lack of evidence must therefore mean it does NOT exist. Basic philosophy my friend. Insert option trading, or God if you like. You can't prove something doesn't exist. There's always an external concentric circle to back out to. So the better question is, can you prove it does exist? When you and anybody else who tries fails at that exercise, can we then conclude that risk free trading does not exist?
Actually derivatives were around hundreds of years before stocks-based on the delivery of commodities from the New World and other territories, aboard ships which may or may not arrive safely to London and Amsterdam. Stocks are just for the sheeple