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Originally Posted by h8kurdt
Forgive me...but what the devil is 'Total Exposure To Derivatives'.
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the thing with derivatives, well its their important characteristic and it is a problem because people are stupid and greedy, is the thing that is called 'leverage risk'.
the nominal value of a derivative is multi times larger than the actual money you put on it. (margin). and it rarely comes to the ending point, where you have to exchange the whole value of it.
-hence, the size of the derivatives market is crazy.
however you 'play', your gains and losses are on the nominal value, so you might end up losing whole your capital (the margin) and far more of course, if noone stops you.
im not sure if 'total exposure' means all positions a bank has on derivatives, or only the uncovered ones.
i mean you can have a portfolio with combined and complicated positions and strategies that protect each other from losses - you dont gain much either, but you do it for a gazzilion other reasons.
you can love and at the same time, hate derivatives. thats how it is.
banks and 'houses' you can just hate them.