The $650 trillion derivatives market is a nightmare scenario waiting to happen. First problem: the size. It's 36 times the size of the U.S. GDP and over eight times larger than the world GDP, that is, the entire global output of the entire world in a year. While credit default swaps (the type of derivative that played a huge role in the financial crisis) have shrunk significantly in size since the financial crisis, they remain large enough to constitute a potential time bomb inside the financial system that could blow up any time. Second problem: the interconnectedness. Every derivative contract involves two parties. In a crisis, one of these counterparties may be unable and/or unwilling to meet his obligations, leaving a volume of broken contracts that will overwhelm these institutions and render them instantly insolvent. That's why it's crucial we understand the ramifications of these instruments - because while the derivatives monster is ugly, there are things individual investors can do now. Plus, one of the worst offenders could be your own bank... Tags: Derivatives , market crash , stock market crash , what are derivatives , why are derivatives dangerous To get full access to all Money Morning content, click here About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free . Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors. Disclaimer: © 2016 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201. The post Here's What Makes the Derivatives "Monster" So Dangerous (for You) appeared first on Money Morning - We Make Investing Profitable .