> The scale of today’s derivatives market is almost too vast to comprehend. It’s measured in trillions of dollars. The commonly stated notional value of the de

> The scale of today’s derivatives market is almost too vast to comprehend. It’s measured in trillions of dollars. The commonly stated notional value of the derivatives market is sort of a nonsense number. It’s based on (very roughly speaking) the number of derivatives contracts times the value of their underlyings. This means that if you had, let’s say, a billion binary contracts that paid out one cent if Apple was above $180 in one month, this would have a notional value of like $175B, even though the maximum amount of money that changes hands is $10M and the market value of the contracts is even less than that. I looked actual estimated market value of all derivatives contracts a while back and it was something like 1.5% of the stated notional value. It’s still really big, but iirc substantially smaller than “normal” investments like stocks and commodities. Not saying the article’s wrong, it is indeed trillions of dollars even after accounting for this. Just an interesting thing that isn’t usually mentioned.