Let’s recall tulip mania 🌷 In 1637, the Dutch went mad over tulips, buying bulbs for the price of a house in Amsterdam. In reality, it was a mass speculative market of futures and forwards. Very few people traded actual flowers — most deals were done via contracts for future delivery. When the bubble burst, an entire chain of obligations collapsed, with nothing backing them in terms of real bulbs. From June to September, there were physical deliveries — bulbs could be dug up and transported. The other nine months of the year, trading happened through forward contracts. They called it windhandel (wind trade), because the bulbs themselves didn’t take part in the deals. Contracts changed hands up to five times a day, with no daily settlement and no central clearing. Only a small deposit was paid, so leverage was high. Tavern owners were the only ones consistently making money, taking about 2.5% from each deal made on their premises (wine money). A pure OTC derivatives market of the 17th century. When the trend reversed, buyers disappeared. In February 1637, demand collapsed within weeks, and prices fell by 90–99%. Authorities in Haarlem and other cities stepped in and allowed contracts to be canceled for a small penalty of 3.5%–10%. A kind of bailout. So, tulip mania turns out to be a story about an uncontrolled derivatives market, leverage, the illusion of liquidity, and rules changing on the fly. UTEX · Channel with trading ideas