Leverage and physical contact
As an instrument's contact with physical Layer 0 drops, its volume and leverage climb. Leverage and contact degree per instrument.
Place each instrument in Layer 3 on two axes: how much contact it has with physical Layer 0, and how much leverage sits on top of it. The two run opposite. Buying a share actually transfers a slice of company equity; in an interest rate swap no material or ownership moves, only the net difference is paid, and that is where volume and leverage peak.
Nine instruments, contact → volume
Physical contact decreases top to bottom. Each row shows the typical leverage range and the annualised turnover. As contact drops, volume multiplies.
Ownership transfer
Spot equities185,0 T $
1-2×3%
Reg-T margin 50%; company equity actually changes hands.
Physical commodities (spot)20,0 T $
1-3×0%
Actual delivery; the Layer 0 good moves from warehouse to tanker.
Government bonds spot342,0 T $
1-20×5%
Repo haircuts on treasuries are 1-4%; the note itself transfers but is heavily levered via repo.
Liquid exchange
FX (spot + forward)2.429,0 T $
20-50×38%
Institutional prime-broker leverage 20-50x; cash moves, not goods.
Derivative (partly delivered)
Commodity futures60,0 T $
5-15×1%
Exchange margin 7-20%; 1-2% of contracts close with physical delivery.
Purely financial
Index futures90,0 T $
10-25×1%
Cash-settled; no shares bought, only direction traded.
Credit default swaps (CDS)42,0 T $
15-40×1%
Insurance on the probability of a default; neither debt nor goods move.
Interest rate derivatives (IRS)6.318,0 T $
20-100×100%
Notional / gross market value 30-60x; no physical delivery, the net rate difference is paid.
Typical leverageAnnual volume
This is Layer 3's core pattern: the contracts furthest from the physical base are the fastest-turning. Most of the system's volume forms with no material stirring.
Sources & method →