Global Derivatives Markets, Notional Value, and Underlying Assets

With an extensive leadership background in banking, Julio M. Herrera Velutini heads London-headquartered Britannia Financial Group and maintains auxiliary offices in Geneva and the Bahamas. Julio M. Herrera Velutini’s firm provides a comprehensive set of financial services, including access to global derivatives markets.

The scale of derivatives worldwide is immense, as they represent investment assets that span commodities, equities, interest rates, currencies, and bonds. High-end estimates place this value at up to $1 quadrillion or 10 times more than the world’s gross domestic product.

However, many place the actual value significantly lower. This has to do with the way derivative contracts place notional value on underlying assets that are challenging to quantify. At their most basic, derivative contracts are speculations, packaged as contracts between parties, on the future price movement of the securities upon which they are based.

For example, with interest-rate swap derivatives, the large principal amounts associated with underlying interest rate instruments are included in total swaps value. However, this value never actually gets transacted. Instead, a fraction of the total principal amount, represented by interest payment amounts, is actually traded. For this reason, one estimate in 2019 placed the actual value of global derivatives at $12 trillion, while the notional value stood at $640 trillion.