Study of Speculative Trading Risks Based on Example of Short Squeezing

Financial derivatives are essential hedging tools in modern financial markets. Since the 1990s, China's over-the-counter derivatives market has developed rapidly, occupying an important position in the world and playing an important role in economic and financial development. However, the open development of the derivatives market also faces risks. From the perspective of international markets, the overuse of poorly managed derivatives markets and overdevelopment that does not match regulatory capacity can generate risks in many ways. The opening of China's derivatives market to foreign financial entities also poses a potential systemic risk, which may threaten national financial security in serious cases and requires high vigilance. General financial products and simple derivatives form complex derivatives by nesting various complex structures with high leverage and betting characteristics, which can pry the financial market or become a tool to manipulate the financial market under special circumstances, thus affecting financial institutions and impacting the financial system. Based on the current situation of the development and regulation of China's derivatives market, the cases of overseas hedging losses and the potential systemic risks that may be increased by financial opening, it is suggested that the planning of the development and opening path of China's derivatives market and the regulatory system can be further improved to prevent and control the accumulation of potential systemic risks.