Best Bet in Derivatives: Don't Look to Jump Any Time Soon

Given increased regulation, it's no surprise that the global credit derivatives market decreased by 14 percent in the first six months of the year, to $26.3 trillion from $30.4 trillion. According to the International Swaps and Derivatives Association, that includes credit default swaps referencing single names, indexes, baskets, securitized obligations, and portfolios.

But don't let the decrease fool you. The derivatives marketplace is still a large and growing one. Credit derivatives and equity derivatives are most certainly on the decline, but they only make up a small percentage of the market.

Meanwhile, interest rate derivatives are on the upswing. The ISDA says interest rate derivatives, including interest rate swaps and options and cross-currency swaps, increased 2 percent globally, to $434.1 trillion from $426.7 trillion at year-end 2009. The total global OTC derivatives marketplace totaled $466.8 trillion as of the end of 2009, with interest rate derivatives making up 93 percent of it.

In the U.S., the big banks are busy moving derivatives activity to desks with counterparties clearing the trades. The shifting market structure will eventually produce additional and specific jobs. It's expected that regulation is going to boost regulatory positions and IT posts at trading firms. Increased clearing activity also means potential growth for clearing firms, and they'll need risk managers, IT personnel, and client relations staff.

Also projected: New entrants will come into interest rate derivatives trading as smaller companies take advantage of simpler and more transparent rules for clearing. But that additional competition is bound to mean less money for each firm. Less money for firms most certainly translates to less money for traders. It's clearly not the time to jump ship and look for more lucrative positions elsewhere.