The scale of the derivatives market has been laid bare for the first time in en effort to avoid a devastating repeat of the 2009 market crash by the Paris-based European Securities and Markets Authority (ESMA).
There were 33million transactions, but the study is just a “starting point” in understanding the gigantic market and its risks, according to ESMA.
The complex financial products are dependent on the value of other assets.
And this can become problematic if the underlying assets are difficult to value.
Layers of interdependent and difficult to understand credit derivatives pushed financial markets into taking on more risk ahead of the financial crisis.
After 2009, leaders of G20 countries pledged to increase the transparency of derivatives markets in an effort to stop a repeat of the devastating crash.
Derivatives can be a useful way of reducing risks or hedging for companies.
But since 2014 companies and clearing houses must keep track and report their derivatives contracts.
ESMA’s research showed interest rate derivatives made up the largest market at £250 trillion, while around half of transactions were in equity.
The credit derivatives market is smallest in terms of the number of counterparties, because firms entering into the contracts are typically those with substantial financial hedging needs, according to ESMA.
It comes as stock markets in Europe have hit record highs in recent weeks.
Market crashes become a worry when valuations are at their peak.
But experts say it is difficult to know what could trigger the next market correction.
Gold offers protection in times of falling share prices and values of the precious metal have been edging up in recent weeks, suggesting investors are increasingly worried the top could be near.