British Invisibles (BI), which promotes the UK's financial services industry, said London's share of the global market rose to 36 per cent from 27 per cent.
Turnover of "over-the-counter" (OTC) derivatives - contracts traded outside an exchange - has more than doubled to $171bn last year from $74bn in 1995, BI said.
The number of derivatives traded through London's four exchanges - Liffe, LME, IPE and OM - have risen to 274 million last year from 201.6 million in 1995.
Jeremy Seddon, BI's chief executive, said: "London is well positioned to take advantage of this growth. Not only do we have unrivalled market depth and expertise, but our favourable tax environment, the use of English law in many international OTC contracts and the successful adaptation to the euro provide many trading opportunities."
The report, BI's first comprehensive study of the UK derivatives market, said the worldwide OTC market is about five times larger than exchange- listed derivatives. It estimated that international fees and commissions on UK exchange-listed contracts totalled pounds 1.4bn in 1997.
The study concluded that derivatives will play a key role in helping London maintain its position as a major international financial centre.