There have been some significant trends and issues that FX markets have been watching this past year. Abenomics was one key driving force for the rise in yen trading, and Quantitative Easing have made hedgers and speculators realize that currency risk can no longer be an afterthought. But as many FX venues have seen dramatic decreases in trading volume, CME FX markets have seen significant growth in one key area – options. In fact, through October this year as our research shows our options volume has grown 45 percent (31 options contracts now trading 85 percent electronically) and open interest is now made up of 40 percent options.
And it’s not only large traders using traditional options. The growth in our smaller, capital efficient e-micro FX products, are up in volume 30 percent year over year.
The growth in options is not too surprising given recent major risk events, like QE tapering discussions and Abenomics. Investors tend to use options as a safer tool to hedge exposures during periods when risks are very difficult to quantify. We have also seen a surge in the trading of our weekly option contracts as customer look for more tailored positioning to capture short term events like the recently delayed release in the unemployment report. This increase has occurred across client segments, including managed accounts and self-driven traders.
If you are interested in learning more about our FX Options take a look at our white paper on Managing Currency Risks with Options. It serves as a sort of training manual for trading currency options.
FX is very different from other asset classes, primarily because it’s not a domestic market – it is a global product in a global market. FX touches every cross-border transaction – whether it’s oil, gold, equities, transfer of hard and durable goods, etc., so it is a truly global product. Since 1972, CME has offered FX futures and options dating back to the breakdown of the post WWII Bretton Woods agreement that imposed fixed exchange rates between the world’s currencies. The availability of currency futures, and later, options, have allowed businesses to manage risk exposure to QE, Abenomics, or whatever the next FX uncertainty might be.