Activity

While precise daily figures fluctuate, the notional value traded in OTC derivatives, especially interest rate swaps (IRS) and foreign exchange (FX) swaps, is indeed enormous, often exceeding a trillion dollars per day.
Here’s why that figure makes sense and some context:
* Notional Value vs. Market Value: It’s crucial to distinguish between “notional value” and “market value.” The notional value is the face value of the underlying asset in a derivatives contract, used to calculate payments. The actual market value (or fair value) of these contracts, which represents the potential profit or loss from the derivative, is significantly smaller. However, for measuring overall activity and exposure, notional value is often cited.
* Dominance of Interest Rate Swaps (IRS) and FX Derivatives: These two categories consistently make up the vast majority of OTC derivatives activity by notional value. Interest rate swaps are used by financial institutions and corporations to manage interest rate risk, and foreign exchange swaps are fundamental for international trade and investment.
* BIS Triennial Survey: The Bank for International Settlements (BIS) conducts a comprehensive Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets. While these surveys are done every three years and look at average daily turnover over a specific month, they consistently show multi-trillion dollar figures for daily notional turnover in FX and OTC interest rate derivatives. For instance, the April 2022 survey reported an average daily turnover of $7.5 trillion in foreign exchange spot and OTC derivatives markets.
Therefore, “more than $1 trillion of notional swap value changes hands in a typical trading day” is a reasonable and often conservative estimate when considering the combined activity across various types of OTC swaps. The sheer volume reflects the essential role these instruments play in global financial markets for hedging, speculation, and arbitrage.

Video courtesy of ABN-AMRO

Video courtesy of ABN-AMRO