Financial derivatives usually refer to financial instruments derived from basic assets. Many financial derivatives transactions are also called "off-balance-sheet transactions" because they have no corresponding subjects on the balance sheet. The common feature of financial derivatives is margin trading, that is, as long as a certain proportion of margin is paid, the full amount can be traded without actually transferring the principal, and the contract is generally settled by cash spread. Only contracts performed by physical delivery on the due date require the buyer to pay all the loans. Therefore, financial derivatives trading has leverage effect.
Classification of financial derivatives
The lower the margin, the greater the leverage effect and the greater the risk. There are many kinds of financial derivatives in the world, and active financial innovation activities constantly introduce new derivatives. Financial derivatives are mainly divided into the following categories.
(1) According to the product form. It can be divided into four categories: forward, futures, options and swaps.
Forward contracts and futures contracts are both forms of transactions in which both parties agree to buy and sell a certain amount and quality of assets at a certain price at a certain time in the future. Futures contracts are standardized contracts formulated by futures exchanges, which stipulate the expiration date of contracts and the types, quantity and quality of assets to be bought and sold. Forward contracts are contracts signed by buyers and sellers according to their special needs. Therefore, the liquidity of futures trading is high and the liquidity of forward trading is low.
Swap contract is a kind of contract signed for the two parties to exchange certain assets in a certain period in the future. More precisely, a swap contract is a contract signed by both parties to exchange cash flows that they think have equal economic value in a certain period in the future. Interest rate swap contracts and currency swap contracts are more common. If the exchange currency specified in the swap contract is the same currency, it is an interest rate swap; If it is a foreign currency, it is a currency swap.
Option trading is the trading of buying and selling rights. Option contracts stipulate the right to buy and sell primary assets of a specific kind, quantity and quality at a specific time and at a specific price. Option contracts include standardized contracts listed on the exchange and non-standardized contracts traded over the counter.
(2) According to the primary assets, it can be roughly divided into four categories, namely, stocks, interest rates, exchange rates and commodities. If subdivided, the stock category includes the stock index formed by specific stocks and stock combinations; Interest rates can be divided into short-term interest rates represented by short-term deposit rates and long-term interest rates represented by long-term bond rates; Currency category includes the ratio between different currencies: commodity category includes all kinds of physical commodities.
(3) According to the transaction method, it can be divided into on-site transaction and off-site transaction.
On-site trading, also known as exchange trading, refers to the trading mode in which all the supply and demand sides concentrate on the exchange for bidding trading. This trading method has the characteristics that the exchange collects the deposit from the trading participants, and is also responsible for liquidation and performance guarantee. In addition, due to the different needs of each investor, the exchange has designed standardized financial contracts in advance, and investors choose the contracts and quantities closest to their own needs for trading. All traders are concentrated in one place, which increases the density of transactions and usually forms a market with high liquidity. Futures trading and some standardized option contract trading all belong to this trading mode.
OTC, also known as OTC, refers to the way in which both parties directly become counterparties. There are many forms of this transaction, and products with different contents can be designed according to the different needs of each user. At the same time, in order to meet the specific requirements of customers, financial institutions selling derivatives need to have superb financial technology and risk management capabilities. Over-the-counter transactions constantly produce financial innovations. However, because the liquidation of each transaction is carried out by both parties, the participants in the transaction are limited to customers with high credit. Swaps and forwards are representative derivatives of OTC transactions.
According to statistics, among the positions of financial derivatives, according to the transaction form, forward transactions account for 42% of the total positions, followed by swaps (27%), futures (18%) and options (13%). In terms of transaction objects, interest rate financial derivatives represented by interest rate swaps and interest rate forward transactions have the largest market share, accounting for 62%, followed by currency derivatives (37%) and stock and commodity derivatives (1%). During the six years from 1989 to 1995, the scale of financial derivatives increased by 5.7 times. The gap between various trading forms and various trading objects is not big, but it is expanding at a high speed as a whole.
Current situation of international financial derivatives market
Financial derivatives market can be divided into exchange market and OTC market. Since11980, the derivatives trading in both markets has made great progress: during the period of 1986 ~ 199 1, the average annual growth rate of trading volume in exchange market and OTC market was as high as 36% and 40% respectively; In 199 1, the nominal value of open interest contracts in the two markets reached 3.5 trillion dollars and 6 trillion dollars respectively, of which interest rate contracts were dominant in both markets; By the end of 200 1, the nominal value of exchange market contracts had increased to $23.54 trillion, the OTC market had increased to11trillion, and the global OTC market value had reached $3.8 trillion. The huge growth of financial derivatives trading in exchange reflects the demand of institutional investors for financial innovation with enhanced liquidity (that is, increasing the liquidity of spot market), and the growth of OTC derivatives trading caters to the demand of institutional investors for financial innovation with risk transfer.
Regional distribution structure of financial derivatives
Exchange financial derivatives market
Developed countries in Europe and America have concentrated most of the financial derivatives transactions on the global exchanges, and more than 80% of the global transactions are distributed in North America and Europe. In recent years, this concentration trend has become more obvious. In the nominal value of open financial futures and options contracts at the end of 1999, 80.5% of the world belongs to North America and Europe. By the end of June, 2002, this proportion had risen to 93.7%, and the contract value in North America accounted for 64.6% of the total contract value (see Table 4).
The United States is the main market for financial derivatives trading on global exchanges, but its status is declining. Financial derivatives contracts traded on American exchanges account for 965,438+0.4% and 65,438+0.988, 65,438+0.990, 65,438+0.992 and 65,438+0.994 respectively. The growth in the European market is the most significant, with the transaction volume of 1994 being 399% of that of 1986. During this period, Japan's trading volume increased by about seven times. According to the statistics of trading volume, until 1986, the United States still accounts for 80% of the trading volume and the value of open contracts in the exchange market. After 1990, the market outside the United States became increasingly active, and the transaction growth rate began to exceed that of the United States. By 1995, the volume of transactions outside the United States has surpassed that of the United States, and the value of open contracts is slightly lower than that of the United States. From the statistics of trading volume, the active trend of derivatives trading in markets outside the United States is more obvious after 1990 (see Table 5).
OTC financial derivatives market
Similar to the exchange market, the OTC financial derivatives market is mainly distributed in Europe and America. Britain has always maintained a leading position in the OTC market, and its market share is also increasing. Other OTC transactions are mainly distributed in the United States, Germany, France, Japan and other countries (see Table 6). London is the most important center of OTC financial derivatives market, with an average daily trading volume of $628 billion at 200 1, an increase of 6% compared with 1998. The average daily trading volume of new york ranks second, at US$ 285 billion, which is 3% lower than that of 1998, and Frankfurt ranks third, which has replaced Tokyo's position in the OTC market. Frankfurt's position obviously benefited from the introduction of the euro and the establishment of the European Central Bank (ECB).
Investor structure of financial derivatives
Financial institutions are the main participants in the financial derivatives market. For example, in the United States, there are three types of financial institutions involved in derivatives trading: commercial banks, non-bank savings and loan institutions (Thrift) and life insurance companies, among which commercial banks are the earliest and most skilled participants. According to a report of the Group of Thirty 1993, most financial institutions surveyed participated in financial derivatives transactions, among which 92% used interest rate swaps, 69% used forward foreign exchange contracts, 69% used interest rate options, 46% used currency swaps and 23% used currency options. BIS statistics show that the trading volume of financial institutions in the global OTC financial derivatives market has increased steadily, with 200 1 increasing by 60% compared with 1995. Transactions mainly occur between financial institutions, with the average daily transaction volume increasing from10.00 billion US dollars in 1995 to10.2 trillion US dollars in 2006, and the market share of transactions among financial institutions increasing from 80.7% in195 to 86.7% in 2006.
Banks are undoubtedly the protagonists of the financial derivatives market (especially the OTC market). Since the end of1970s, banks have been more and more keen on trading financial derivatives. For example, American banks are very active in financial derivatives trading. From 1990 to 1995, the assets related to derivatives held by banks increased by about 35% to 3.65438+. Banks are the main participants in the financial swap market. By the end of 1992, the outstanding value of global interest rate swap contracts reached US$ 6 trillion, and the 20 financial institutions with the largest positions accounted for more than two-thirds, of which banks accounted for 18.
Non-financial institutions are obviously less active in financial derivatives trading than financial institutions. For example, at present, non-financial institutions only account for 65,438+00% of OTC financial derivatives transactions, and their market share has shrunk significantly compared with 65,438+0,995 (see Table 7). According to the report of the Group of Thirty 1993, among the non-financial companies surveyed, the proportion of companies that have used interest rate swap, currency swap, forward foreign exchange contract, interest rate option and currency option is 87%, 64%, 78%, 40% and 3 1% respectively.