In the last fifteen years, the globalization of financial markets and institutions along with innovative investment strategies have caused an irreversible revolution in the world’s financial markets. Investors and managers can now use new instruments, such as derivatives, for guarding against financial risks. Derivatives are financial instruments whose returns are derived from other assets or variables, like futures and options. The growth of derivative markets has accelerated rapidly in the last ten years, which has caused financial markets in the United States and throughout the world to be more efficient, which contributes to economic welfare. However, the dramatic growth in the use of derivatives has prompted expressions of concern from U.S. financial regulators and Congress; concerns focus on the difficulty of assessing the various risks associated with derivative products. The first of the two main concerns is that poor management or lack of understanding of these complicated instruments could cause companies and banks to incur heavy losses. The second concern is the broader impact on other financial markets, particularly whether derivatives have a destabilizing influence. This paper analyzes the legal aspects of derivatives regulation, and sketches the risks users encounter in trading these products and the tools available to governments and agencies to manage and reduce these risks in the United States.