Why Is The Derivatives Market So Enormous?

September 24, 2022
Photo by Chris Liverani on Unsplash

Why does every passing year witness a massive growth in the size of the derivatives market? For years, there’s been a gigantic gap in the total worth of derivatives and the corresponding value of their underlying assets. There’s no simple answer to the question. Instead, it’s necessary to examine several factors that account for the huge difference in the sizes of the two markets.

Here’s an instructive factoid that sheds light on the extent of the disparity between the asset and derivative markets in that for the past four years, the total amount of options and futures traded worldwide has set a record. Most recently, those two core derivatives grew at an astronomical annual rate of 33%. For many reasons, underlying assets, like stocks, bonds, and commodities, can’t keep up with the super-charged expansion of derivative markets.

What attracts experienced and new investors to non-primary securities? If you read through a market report you’ll find that in addition to variety, low cost of entry, and potentially high returns, it’s easy to acquire assets like options and futures contracts. But there’s more to the phenomenon than those basic concepts. Anyone interested in putting their capital at risk should know the basics and understand that higher potential profits come with a similar level of financial risk.


In addition to the fact that the market for derivative-based instruments is unimaginably huge, the variety of choices available to potential entrants is quite impressive. Whatever investment asset a person can think of has a derived cousin. There are derivatives on stocks, commodities, currencies, bonds, and more. How big is this marketplace? It’s hard to put a precise value on it because of its size, but most estimates say that the grand total is about ten times the GDP (gross domestic product) of all the nations on earth.

Low Cost

While there are many types of financial derivatives, all of which come with unique price structures, the niche is characterized by a relatively low cost of entry. Traditional stock options are a good example. The cost to buy an option on a high-priced corporation’s shares might cost just a few dollars. This is often the case when the shares themselves, all 100 of them in an options contract, might cost many thousands of dollars. The situation is similar for investors who prefer to acquire CFDs (contracts for difference), futures, options on cryptocurrency, forex options, and other kinds of non-primary assets and securities.

With the accessibility and affordability of options trading across various financial derivatives, such as CFDs, futures, and cryptocurrency options, the options profit calculator proves to be an invaluable tool in gauging potential costs and returns, empowering investors to make informed decisions regardless of the type of asset or security they choose.

Potentially High Payoff

Compared to stocks and commodities, derivatives offer exponentially higher potential returns. It’s important to remember that, as is the case with account leverage, the much greater possible returns come with equally high risk or loss. A futures contract purchased primarily with borrowed funds can deliver major profits or huge losses to its holder, depending on the outcome of the position. But even with this double-edged sword scenario, there are certain types of people who gravitate toward derivative trading for the very reason that there is the chance of greater paydays when things go right.

Can Easily Play Any Market

One of the hallmarks of the modern financial world is that derivative enthusiasts can invest in almost any market that attracts them. The entire concept of a derived asset has gained untold popularity for plenty of different reasons. However, consumers who want to put their money on the line have fallen in love with the idea of choosing any marketplace within which to speculate. In practice, the most active participants operate in more than one arena simultaneously. It’s not unusual for an account holder to maintain open positions in forex-based CFDs, options contracts on equities, commodities futures, and several others.

Long List of Advantages

Just the same as with other markets, like the debate of crypto hot wallets vs cold wallets in any discussion about derivative financial instruments, it’s often forgotten that while they can be complex, the class comes with a long list of benefits. Compared to their underlying assets, they come with all the pluses noted above, like potentially high profits, numerous playable markets, and affordability. But there are more advantages on that list, like the ability for investors to lock in specific prices, the chance to hedge against potential risk, and the possibility of reducing possible losses altogether.

For companies, individuals, and institutions, a derivative instrument can serve as an effective and low-cost way of taking part in the market in ways not available to those who simply buy and sell primary-level securities like stocks and commodities. Another plus is that most brokers offer generous margin policies to account holders. That’s just one reason many investors and traders use borrowed money to build a stake in the securities marketplace.

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