Investors Turn to Futures09.08.2011
The use of futures as a tool to hedge risk is on the rise as the markets remain highly volatile.
With volatility at levels not seen in more than two years, investors turned to futures and derivatives to better manage risk.
“The underlying interest rate market has been extremely volatile, I think that’s the general underlying factor whenever any exchange records significant volume,” said Neal Wolkoff, chief executive officer of ELX Futures. “Also, the fact that we have been open for more than 2 years now, we’ve expanded the number of customers that access our market.”
“We are gratified that in times of volatility, users have had the confidence in the markets to come to ELX,” added Wolkoff.
For August, ELX set record trading volumes in its 30-Year U.S. Treasury Bond futures contracts as well as its Eurodollar futures contracts. Eurodollar futures alone accounted for over 512,000 contracts of the total 545,000 contracts traded in the month. Year-over-year, the company’s market share grew 364 percent.
“The market is quite sophisticated, even down to the retail level,” said Wolkoff. “Institutions and individuals are becoming more savvy and are paying attention and using various derivatives to hedge risk and explore directional opportunities. The level of sophistication has increased the use of these standardized instruments.”
Other exchanges also saw either record-high or substantial increases in futures and derivatives trading volume for August. The IntercontinentalExchange saw a 37 percent jump in futures average daily volume for the month. ICE Futures Europe outperformed its stateside affiliate, with a 41 percent increase, compared to 29 percent in the U.S.
NYSE Euronext experienced a 65 percent increase in global derivatives ADV, with a 37 percent bump in European contracts and a 323 percent spike in the U.S, where it is still growing.
The Chicago Board Options Exchange and CME Group each posted all-time high trading volumes for August. CBOE Futures set a new record high in trading volume the fourth consecutive month, with 1.8 million contracts. Compared to July, which was its previous high, and August 2010, these are increases of 56 percent and 527 percent, respectively. Futures trading of its Volatility Index, or VIX, also established an all-time high, with 1.8 million contracts traded for the month, or 79,402 per day, a 500 percent increase from a year earlier. CME’s record setting month produced a 46 percent increase from last year, at 393 million contracts. Metals trading was up 131 percent in the month, as investors flocked to the safety of gold.
ISE also saw big gains, with 4.1 million contracts traded in August, a 75.2 percent bump. Total options volume for the month at the exchange was 94.8 million contracts.
“I think futures is certainly a growing industry,” said Wolkoff. “There’s some uncertainty from perspective of Dodd-Frank and the impact that will have on the general swap market, and derivatives in general. It’s a bit of a wait-and-see, but I think these standardized instruments are very strong because of their liquidity and easy availability.”
This year's traded notional exceeded €100m compared to last year’s €20m.
Clients can access UMBS TBA futures alongside U.S. Treasury and short-term interest rate contracts.
In May CME Ether futures had the highest volumes since launch.
The use of risk-free rates has also reached an all-time high.
Gemini allegedly made false or misleading statements in self-certification of bitcoin futures.