Question

Should the government regulate derivatives more than they do now? If so, why?

Answer 1

Derivative- It is a contract whose value is derived from any underlying asset. Underlying asset may be equity, commodity or currency.

Derivative is a complex and risky financial product. Many traders trade in derivatives. In the well regulated and well informed market, investors get the chance to play with derivatives to hedge their portfolio and earn more money. Proper regulation in derivatives market is most important so that investors, brokerage firms and companies may be safe from fraud.

Government has already made rules and regulations for the proper control of derivatives market but we still need some modifications and new regulations. Government should come up with the rule of adequate collateral for the backup of financial transactions. Government should set tough limits, investor only can take short position when he/she has adequate money in his/her account. Government should make new rules for Insurance companies and pension funds. Investors should be well educated about the financial derivatives and other products. All the rules should be transparent. There should be no hidden charges.

U.S Financial markets will become number one after the proper rules and regulations. Investors will be more confident to trade.