Options Shine as Overall CME FX Contracts Down 18.5%

The CME has posted its monthly futures and options volumes for October. During the month, combined futures and options average

The CME has posted its monthly futures and options volumes for October. During the month, combined futures and options average daily volumes (ADV) were 643,877 contracts, 18.5% below September’s figures.  According to the CME, average daily volumes on a dollar notional level were more than $80 billion. On a Total monthly volumes were reported at 14,809,181 contracts, a 10.3% MoM decline, as October included two more business days than September. Volumes were also below the same period last year, as total monthly FX volumes in October 2012 were 16,315,747 contracts, 9.2% higher.

Bucking the overall trend was activity in FX options, which rose 12.3% on ADV of 59,000 contracts during October. While still dwarfed by futures trading, throughout the year FX options have been one of CME Group’s best performers, as volumes during October surged 90.6% above the same period in 2012. FX options volumes have been assisted by the overall increase in volatility during 2013, as well as the CME’s increased efforts in raising awareness of the product.

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In individual currencies, major names were all down with the euro, aussie, yen, and pound, all experiencing double-digit volume declines (see table below). Since peaking in June, CME FX volumes have been trending lower on a decline in volatility, as well as monetary policy rhetoric from the FED and ECB has led to rising interest rates. The latter has caused deleveraging among carry trade currency candidates to occur.

Volumes ripe for a spike?

The decline in FX volumes since July has occurred as the US dollar has weakened against major currencies. Since hitting a year high of 84.75 in July, the Dollar Index (DXY) fell to a low of 79.19 in October, before currently rebounding above 80.00. Following the dollar’s decline, the market looks poised for a spike higher as CME commitment of traders reports (COT) show speculators short positions against the dollar at year highs. Similar one-sided speculator positions in 2013 have led to spikes in FX volumes and prices.  In addition to the benefits to overall volumes, sharp price moves will be expected to trigger further gains in FX options contracts.

CME October 2013 FX Volumes
CME October 2013 FX Volumes
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