1. Derivative contracts is a lucrative technique to make money from the stock market and same has been used by a number of CEO to show impressive earnings and may favour a trader who is eyeing a multi-million dollar bonus and in this quest a number of wrong practices are undertaken. The Point here to consider is that at times the earnings which are reported in the annual reports is an eye wash and thus a critical eye is required to catch these wrong doers by neck. Derivatives instruments like total-return swaps are those contracts which enable one to leverage in various markets, including stocks and that too 100%.


2. The point to explain is that at times such transactions are undertaken which are beyond the perview of naked eye and market regulators like Party A to a contract which is generally a bank, puts up all of the money for the purchase of a stock while Party B, without putting up any capital, agrees that at a future date it will receive any gain or pay any loss that the bank realizes and thus no margin is being paid upfront. In these ill founded transactions bank members earn a commission for the risk they are undertaking. Thus banks and financial institutions are more at a receiving end if market falls drastically and other party refuses to oblige. This scheme has led to number of banks and financial institutions collapse.