Eli5: It’s said that the derivatives market is worth over $1,000,000,000,000,000. Where did all of this money come from?
In: 5
Nowhere because that money doesn’t really exist. That value comes from taking all contracts currently open and adding up the value if they were all executed. This is a terrible way to determine value. Its like making you own company with 1 trillion shares and convicting your friend to buy 1 shares for a dollar. Do you really think that company is now worth $1T? In reality 85% of contract expire worthless and the majority that dont are part of some hedging strategy so there are other off sets.
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