I am currently reading "Market Microstructure" by Larry Harris and I'm new to Finance and Economics world.

In the section about Magnitude of Trading (ch 3.4.1 p. 45) Larry Harris says that derivative contracts like options, futures and swaps contrast represent 0% of the capital wealth of a country. I do not understand why this is so probably because I don't clearly understand the underlying concept of the capital wealth of a country.

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    $\begingroup$ I'm not familiar with Harris's book, but is it perhaps referring to derivative contracts in which both parties are in the same country? $\endgroup$ Nov 4 '21 at 11:19
  • $\begingroup$ The country in question is US. But I want to understand these notion in economical terms. $\endgroup$
    – 1amroff
    Nov 4 '21 at 11:28

A derivative is a financial instrument whose value is dependent on an underlying asset. However it does not represent this asset nor does it hold any claim on the asset.

At the end of the day, the only thing that happens with a derivative is that money is transferred between the agents that are involved in the derivatives contract.

On the other hand, if you have a financial asset, like a stock, you own a piece of the firm. So this asset has real underlying capital value which might increase or decrease in value depending on the performance of the firm.


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