Tag Archives: futures and options

Global futures and options trading reaches record level in 2020

FIA released yearly statistics that show the total number of futures and options traded on exchanges worldwide reached a record level of 46.77 billion contracts in 2020, up 35.6% from 2019. Total futures trading rose 32.7% to 25.55 billion. Total options trading rose 39.3% to 21.22 billion. Open interest, which measures the number of outstanding contracts at a point in time, also reached a record high, reaching 987.3 million contracts at year-end, up 9.7% from December 2019.

This is the third year in a row that the global exchange-traded derivatives markets set a record in terms of total trading activity. As in past years, rapid growth on exchanges in Brazil, China and India accounted for much of the increase. An additional factor in 2020 was an explosion in retail trading of equity options, particularly in the US. Equity options traded on US securities exchanges jumped 52.4% to 7.47 billion contracts in 2020.

Not all sectors enjoyed an increase in trading activity. The interest rate category in particular suffered from a steep decline in both volume and open interest. Trading of interest rate futures and options fell to 4.15 billion contracts, down 13% from the record level set in the previous year, and open interest stood at 176.6 million contracts at year-end, down 19.6% from December 2019.

FIA’s statistics on volume and open interest are collected from 80 exchanges operated by 52 companies in 33 countries. The statistics are based on the number of contracts traded and/or cleared on these exchanges and are adjusted to avoid double counting.

FIA will hold a webinar on Jan. 27 to provide a more detailed look at global trends in futures and options trading. Click here for more information.
 

Regional Rankings

Exchanges in the Asia-Pacific region had the largest increase in trading in 2020. Total volume in that region reached 20.15 billion contracts, up 5.64 billion or 38.9% from the previous year.

North America, the second largest region in terms of trading volume, recorded 12.85 billion contracts traded in 2020, up 2.58 billion or 25.2% from the previous year.

Latin America, the fastest growing region in percentage terms, increased its volume by 2.33 billion or 56.9% to a total of 6.43 billion in 2020. Europe, which now ranks fourth, recorded 5.6 billion contracts traded in 2020, an increase of 567 million or 11.3% from the previous year.

Europe and North America continue to account for the majority of open interest. Total outstanding positions at year-end in the North American region was 515.9 million contracts, up 13.9% from the previous year, and equivalent to more than half of all outstanding contracts worldwide. Open interest in Europe stood at 209.3 million contracts at year-end, down 4.9% from December 2019, but equivalent to 21.2% of global open interest. Asia-Pacific open interest stood at 86.2 million contracts at year-end, up 8.2% from the previous year, but equivalent to only 8.7% of global open interest.
 

Category Rankings

Equity-related derivatives accounted for the majority of the increase in trading activity in 2020. Futures and options on equity indices, the largest category of the listed derivatives markets in terms of volume, reached 18.61 billion contracts traded in 2020, an increase of 6.15 billion or 49.3% from 2019. Futures and options on individual equities reached 9.9 billion in 2020, an increase of 3.8 billion or 62.3% from the previous year.

In the commodity sector, energy and agricultural contracts had the highest growth rates. The trading of energy futures and options rose 24% to 3.15 billion contracts, while trading of agricultural futures and options rose 45.4% to 2.57 billion contracts. In both categories, the majority of the growth came in contracts listed on exchanges in China.
 

Exchange Rankings

The National Stock Exchange of India once again came out on top in terms of total volume. The exchange reported total trading volume of 8.85 billion contracts in 2020, up 48.1% from the previous year. Brazil’s B3 continued its rapid growth, with total trading volume rising 62.5% to 6.31 billion. CME Group came in third, with total volume of 4.82 billion, almost unchanged from the previous year. Intercontinental Exchange came in fourth, with volume rising 23.6% to 2.79 billion contracts. Close behind was Nasdaq, with volume rising 49% to 2.66 billion contracts.

The OCC continued to rank as the world’s largest clearinghouse for derivatives. The OCC, which provides clearing for more than a dozen trading venues in the US, cleared 7.52 billion futures and options in 2020, 52.3% higher than the previous year, and open interest stood at 394.9 million contracts at year-end, up 31.8% from December 2019, and more than twice as large as any other derivatives clearinghouse.

ICE Reports Record Activity Across Its Environmental Complex as Participants Price Climate Risk

Intercontinental Exchange, Inc. (ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, today reported record open interest across its environmental complex as participants price climate risk.

The environmental complex – which includes futures and options connected to ICE’s European (EUA) and California Carbon allowances (CCA), Regional Greenhouse Gas Initiative (RGGI) and renewable energy credits (RECs) – hit record open interest of approximately 2.65 million contracts on November 12, 2020.

Alongside this record growth in liquidity, the number of participants trading ICE’s carbon markets has grown by more than 40% since 2017. Participants based in North America were the strongest contributor to this growth, increasing by more than 70% since 2017. Meanwhile, the number of participants trading both European and North American carbon markets at ICE has grown by approximately 85% since 2017.

“Liberalized markets are critical to the energy transition as they enable competition between energy sources and in doing so help change behavior by attributing a cost to pollution,” said Gordon Bennett, Managing Director of Utility Markets at ICE. “This record activity, coupled with the growth in the number of participants trading these markets, reflects the fundamental role market-based mechanisms like carbon cap and trade schemes play in pricing climate risk.”

Companies subject to carbon cap and trade programs and renewable standards use ICE’s markets to meet obligations and manage their risk in the most cost-effective way and policy makers rely on price signals from environmental markets, such as those traded on ICE, to gauge the effectiveness of their programs and ensure desired outcomes.

As a growing number of companies sign up for voluntary commitments around the world, increasingly diverse stakeholders are turning to ICE’s markets to offset their carbon footprint, invest in green attributes or benchmark their internal cost of carbon. Investors use the price signals from ICE’s markets and indices to help assess climate transition risk in their portfolios, and access liquidity pools for managing risk and allocating capital to benefit from energy transition opportunities.

ICE has been a leader in environmental markets for nearly two decades. ICE has a range of additional solutions including Sustainability Indices that serve as fixed income sustainable benchmarks that account for Environmental, Social and Governance (ESG) factors. These include the ICE Global Carbon Futures Index, which is part of the ICE Carbon Index Family, and measures the performance of a long-only basket of ICE EUA futures contracts, ICE California Carbon Allowance futures contracts, and ICE Regional Greenhouse Gas Initiative futures contracts. Alongside this, the MSCI ESG Index Futures listed on ICE Futures US offer customers a variety of ESG-related futures for benchmarking and managing risk.

How Traders Measure Liquidity

By Dave Lerman

The investment community usually defines a liquid investment as something that can be easily turned into cash. Selling a house is an example of an illiquid investment.  It could take weeks or months to close on the transaction and receive your money.  Stocks, however, tend to be very liquid because they can be sold on a moment’s notice. Moreover, you can sell large amounts of stocks in seconds and receive your money rather quickly.

Unlike the investment community, futures traders measure liquidity in terms of how easy it is to buy and sell the futures contracts they are interested in. They usually use volume, open interest and a narrow bid/offer spread as primary gauges of liquidity. Futures contracts like U.S. Treasuries and Eurodollars trade millions of contracts a day and have open interest exceeding 1,000,000 contracts or more.

Additional gauges of liquidity would involve examining the depth of order book, how many contracts are bid for and how many are offered (often referred to as size). A futures contract that is one up (one contract bid for and one on the offer) is much less liquid than a contract that is one tick wide and 100-up (100 on the bid and 100 on the offer). Some new, or less liquid, futures contracts might have bid offer spreads of several ticks or more and are only a one-up market.

Traders tend to gravitate toward futures contracts where liquidity is optimal, thus reducing slippage, a primary part of overall transaction costs.

About the Author

David Lerman, the Senior Director of Education at CME Group, gives seminars and workshops to retail and institutional audiences focusing on risk management and trading using Equity Index futures and options.

Mr. Lerman is the author of Exchange Traded Funds and E-mini Stock Index Futures (published by John Wiley and Sons).

Prior to joining the CME in 1988, Mr. Lerman traded futures and options on U.S. Treasury Bonds at the Chicago Board of Trade and was Senior Portfolio Manager at Zavanelli Portfolio Research. Mr. Lerman taught investment management at Harper College and has lectured at the Northwestern University Kellogg Graduate School of Management.

Speculators Bought Gold

Hedge Funds increased their net-long position by 4.1 percent to 35,691 futures and options, U.S. Commodity Futures Trading Commission data for July 9 show. Net holdings expanded even as speculators increased short bets to a record. Net-bullish wagers across 18 U.S.-traded commodities retreated 3.4 percent as investors became the most bearish ever on corn. They were more bullish on silver and palladium.

China’s GDP growth down to 7.5 percent

China’s GDP growth slowed in the second quarter to 7.5 percent year-on-year as weak overseas demand weighed on output and investment, lining up a test of Beijing’s resolve to revamp the world’s second-biggest economy in the face of deteriorating data.

Other figures showed industrial output in June rising slightly less than forecast compared with a year earlier, but retail sales increasing more than had been expected.

Greek debt crisis

Greece, agreed to sell two banks as part of an effort to appease its international lenders and consolidate its beleaguered banking sector, says the Hellenic Financial Stability Fund has chosen Eurobank (the fourth largest lender) to buy New Hellenic Postbank. The irony: The rescue vehicle owns 100% of Postbank and 93.6% of Eurobank meaning that, in Reuters’ words, the Stability Fund “was effectively selling Postbank to itself.”