What is the derivatives market?

A derivatives market is a financial marketplace for financial instruments like future contracts or options which are borrowed from other asset forms. Trading motives obviously differ within the derivatives market but there are four groups of participants, Hedgers, Speculators, Margin Traders and Arbitrageeurs.

Where have you heard about the derivatives market?

The exchange-traded derivatives market and the over-the-counter derivatives market are very different in their legal nature and the way they are traded. However, numerous market partakers are active in both. Over-the-counter derivatives make up the largest portion of derivatives and they remain unregulated.

What you need to know about the derivatives market.

The derivatives market has come under attack in recent years with the accusation that they played a role in the financial crisis of 2007-2008, with specificity placed on the Credit Default Swaps (CDS). CDS are instruments which are traded within the over the counter derivatives market. Their leveraging options make them appealing in terms of risk taking, and the lack of clearing obligations became very damaging for the balance with the markets. The G20 proposed a financial markets reform with emphasis on, amongst other things, stronger risk management and an international surveillance of financial firms’ operations.

Find out more about the derivatives market.

To better understand the derivatives market, it’s useful to also read about the commodities market.