Eurex Onboards New Members for FX Futures Despite Summer Slowdown in Activity

German financial trading exchange’s entrance into the congested foreign exchange derivatives markets is gaining traction as new members show interest.

Eurex exchange’s new FX contracts have managed to cause a stir among market participants as their advanced features attract new member firms. The contracts were launched on the 7th of July and offer users unique risk management capabilities. The move comes on the back of increasing interest in listed instruments in light of FX related scandals. In addition, exchange traded currency futures are increasing their foothold in the overall volumes rankings, according to industry reports.

Eurex, part of the Deutsche Börse group, launched six FX contracts last month. The exchange has a number of member firms that make markets on the contracts. However, the exchange has seen a rise in interest in the contracts. A spokesperson at the exchange spoke to Forex Magnates about the exchange’s review of the first month’s activities: “Since our announcement in general and the launch especially, we have been observing a growing interest in our FX product suite.”

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The firm launched six pairs on four major currencies, these include: EUR/USD, EUR/GBP, EUR/CHF, USD/CHF, GBP/CHF and GBP/USD. The contracts are based on the underlying FX spot price. Eurex’s FX futures contracts have a minimum price movement of a half pip for precision trading, the exchange offers standard lots with orders of 100,000 units.

According to the firm’s website, the final settlement price is based on the volume-weighted average of the prices of all transactions taking place a minute before 15:00 CET. If no adequate prices are available, Eurex Clearing will use the average mid-price of the last displayed bid/ask spot prices spread from the minute ending at 15:00 CET, published by the data service provider designated by Eurex Clearing.

Mehtap Dinc, a member of the Eurex Executive Board, commented about the unique nature of the instruments in a statement: “We have tailored our products to market practices and want to provide efficient and effective access to our marketplace.”

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The exchange claims that it offers reasonable trading costs of $0.30 for agency business and $0.15 for maker makers and propriety business, with no membership fees.

Eurex, one of the world’s largest organisations, has developed its product to ensure full protection from issues with counterparty risk. The firm responded in an emailed statement: “Our FX contracts (futures and options) have physical settlement via the established market standard CLS. Our clearing-house, Eurex Clearing, remains counterparty to the trade until the trade is settled. Therefore we offer full counterparty risk protection.”

A London-based, global macro hedge fund manager explained to Forex Magnates that the Eurex product gives users added protection through Eurex Clearing, a unique concept compared to other exchanges where member firms are counterparty to trades.

Mehtap Dinc
Mehtap Dinc

He outlined an example: “At exchange X (X) the trade could be physically settled through CLS but  X will not remain counterparty to the trade. At expiry the clearing-house steps back and allocates a new counterparty to the trade. The counterparty will be one of X’s general clearing members, this is where the difficulties arise, there is no protection between expiry and settlement.”

The currency futures contracts are available on the Eurex multi-asset trading platform T7, thus enabling users to take advantage of accessibility to the exchange’s complete range of orders and instrument types. T7 offers a wide range of order types including, Book-or-Cancel orders and Stop Limit orders.

FX futures are gradually becoming a preferred instrument for traders, according to data submitted in the 2001 BIS FX Survey, exchange traded currency futures only made up 0.8 of volumes. This figure has grown sporadically in the 2013 survey, which saw total market share increase to 3%. Furthermore, exchanges from across the globe have been adding to their product offering with a distinct uptake in the number of exchanges offering emerging market FX contracts.

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