Cantor Fitzgerald Expands Weather Derivatives on Tradewx

To date, trading on weather derivatives was dominated by institutional players to diversify their underlying risks

CX Futures Exchange, a subsidiary of global financial services group Cantor Fitzgerald, L.P. has expanded its offerings by launching a new regulated marketplace for weather derivatives, dubbed ‘Tradewx,’ which allows a wide spectrum of users to either hedge financial risk based upon weather events or speculate on the weather.

To date, trading on weather derivatives was dominated by institutional players such as utility companies, insurers, and reinsurers thanks to their interest in diversifying underlying risks across their portfolios and business deals. Most of these OTC transactions are usually based on historical averages which make any short term coverage prohibitively expensive.

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However, TradeWx provides tools to help retail investors get engaged and create their own weather portfolios, allowing risk hedges for traders as well as more elaborate strategies for speculators. The platform doesn’t offer margin trading or leverage but allows users to trade micro contracts with as little as $1.

“This market provides an opportunity to hedge the financial impact of short term weather as well as speculation. There is no leverage, but the contracts feature limited risk and limited payout. The minimum contract size is $1.00 so a participant can engage with very little funds and potentially get a good multiple on payout if successful,” the company says.

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Expanded list of weather products

TradeWx is preparing to launch three additional weather segments relevant to individuals and small businesses, including Daily Aggregate Rainfall, Maximum Daily Temperature, and Minimum Daily Temperature.

Catering to traders, speculators, hedgers and those looking for climate protection, exchange-traded weather derivatives are still struggling to make headway across retail markets.

In theory, this asset class should thrive in regions with seasonal changes, but the experience saw little demand, suggesting a need for further sector education and innovation.

“This is a 24/7 market with daily settlements. The contracts traded are exchange traded swaps and any US individual or legal entity can engage without the need of a broker or an intermediary. They would be dealing directly with the CFTC authorized exchange and their funds are kept at the CFTC authorized clearinghouse,” Cantor Fitzgerald further states.

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