The Trillion Dollar Secret

Quote from scalpmaster:

But there is a secret right in front of everybody that the Fed, Wall Street and the banking industry wants to make sure investors don’t notice. It is the incredible growth in derivatives. If you think the sub-prime problem is big, you ain’t seen nothing yet.
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Garbarge.The big growth in derivatives volume receives and has received lots of coverage and analysis in the international financial press.You must be living in a dark room so come out into the sunshine more often.
 
The only way I could see the derivatives market collapsing if there is a huge shift in the underlying which results in numerous accounts getting margin called and clients being unable to meet those calls.

This would require an opening gap of some magnitude otherwise brokers would call the accounts before they run out of money.

Of course this is possible and if it does happen the effects would ripple through the entire market.

I think the more likely scenario is that a lot of people/funds get margin called, go bust and the derivs market volume dwindles as positions are realised.
 
Quote from booking:

The only way I could see the derivatives market collapsing if there is a huge shift in the underlying which results in numerous accounts getting margin called and clients being unable to meet those calls. Of course this is possible and if it does happen the effects would ripple through the entire market. I think the more likely scenario is that a lot of people/funds get margin called, go bust and the derivs market volume dwindles as positions are realised.
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Absolutely correct, once more and more banks/big institutes (with rogue traders esp) declare writedowns in derivatives trading in billions, this would send a ripple effect with increasing investors/hedgers/ traders pulling out their funds leading to another form of liquidity crunch just like subprime (By then, Who T F cares about intl financial press transparency crap, data which would be as useless as CDOs info now).
 
Quote from Champion:
Garbarge.The big growth in derivatives volume receives and has received lots of coverage and analysis in the international financial press.You must be living in a dark room so come out into the sunshine more often.
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How naive, Who T F cares about What T F international financial press coverage during a subprime or derivatives meltdown?
 
Derivatives is huge. But you know what, so is stocks, currencies and bonds. Derivatives is a description of financial instruments, which derive it's value from a wide variety of underlyings. It's not like a single security or stock that can just blow up, or indeed a sector or category of instruments like sub-prime debt.

So let's get the terminology straight, because talking about derivatives in general blowing up is like saying stocks will go away. And that will only happen when Hugo Chavez takes over the world; even the Chinese are trading stocks nowadays.
 
Quote from hrokling:

Derivatives is huge. But you know what, so is stocks, currencies and bonds. Derivatives is a description of financial instruments, which derive it's value from a wide variety of underlyings. It's not like a single security or stock that can just blow up, or indeed a sector or category of instruments like sub-prime debt.
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One of the reasons the sub-prime problem became so big is because it evolved into a highly leveraged re-packaged CDO derivative product passed around the world in a musical chair game for big banks/institutes.
 
Quote from scalpmaster:
One of the reasons the sub-prime problem became so big is because it evolved into a highly leveraged re-packaged CDO derivative product passed around the world in a musical chair game for big banks/institutes.
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Absolutely. I'm thinking it's similar to the tech bubble bursting, where a sector completely tanked. I'm not intimately familiar with it, but there must have been some puts somewhere on CDO derivatives.
 
it is not just derivatives in general that are the weapons of mass financial destruction. over-the-counter derivatives are the major problem. these are special performance contracts that are kept off balance sheet, have no regulation/transparency, and will be the source of future problems.
 
Quote from trading@home:

it is not just derivatives in general that are the weapons of mass financial destruction. over-the-counter derivatives are the major problem. these are special performance contracts that are kept off balance sheet, have no regulation/transparency, and will be the source of future problems.
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You mean like Forex and CFDs market traded in licensed bucketshops?:D
 
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