CME Group
Global Trends and Update on FX and Equity Futures
Hong Kong
21st April, 2010
KC Lam
Director
Head of FX Products, Asia
Disclaimer
The information herein is taken from sources believed to be
reliable. However, it is intended for purposes of information
and education only and is not guaranteed by CME Group as
to accuracy, completeness, nor any trading result, and does
not constitute trading advice or constitute a solicitation of the
purchase or sale of any futures, options or other derivatives
products. The Rules and Regulations of CME Group should
be consulted as the authoritative source on all current
contract specifications and regulations.
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Overview of the CME Group
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• CME Group is the world’s leading and most diverse financial exchange for trading futures
and options for both individual and institutional traders.
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• Comprised of the Chicago Mercantile Exchange, Chicago Board of Trade, New York
Mercantile Exchange and COMEX,.
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• All four exchanges are individual Designated Contract Markets (DCMs) offering the
highest level of regulation for a derivatives platform
• Deep liquidity in key benchmarks across all asset classes
3
Access a world of market opportunity.
Diversify and take advantage of current market opportunities with contracts covering
all major asset classes including
Forex
Stock indexes
Agricultural commodities
Energy
Metals
Interest rates.
Learn more at cmegroup.com/resources.
The CME Group is a trademark of CME Group Inc. The Globe Logo, CME and Globex are trademarks of Chicago Mercantile Exchange Inc. The Chicago Board of Trade® are trademarks of the Board of Trade of the City of Chicago. NYMEX is a registered trademark of New York
Mercantile Exchange, Inc. All other trademarks are the property of their respective owners.
FX is the Biggest Financial market in the world !!
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Source: BIS 2007 Survey, SIA, Federal Reserve Bank of New York & World Federation of Exchanges, Celent Report
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Why Trade
ig CME FX ?
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6
FUTURES AND CASH MARKET ……
- MOVE IN TANDEM
- FAIR VALUE & ARBITRAGE WILL ENSURE CONVERGENCE
Cash / Spot Market
Exchange Traded
Futures FX market
7
GROWING VOLUME AND PARTICIPANTS
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07
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Growing Euro FX Futures Open Interest
CME Euro FX Futures Open Interest
300,000
250,000
200,000
150,000
100,000
50,000
0
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Liquidity
FX at CME Group delivers exceptional liquidity for a large pool
of market participants including:
•
•
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•
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•
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•
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Banks
Hedge Funds
Proprietary Trading Firms
Commodity Trading Advisors (CTAs)
Trading Arcades
Individual Active Investors
Retail Traders
Multinational Corporations
Currency Overlay Managers
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Deep 23 hours of liquidity with tight bid-ask
spread (EUR/USD)
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CME Group FX: Global Market Share of Listed FX Products
CME Group FX Products:
A Global Leader in Listed FX Products
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Market Share of Global Listed FX Products
Market Share of N. American Listed FX
Products
15%
28%
CME Group
Others
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72%
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CME Group
Others
85%
CME Group Asia FX volume during Asian Time zone
Growth over Prior year: >100% (2009) over Prior year (2008)
2nd straight year of growth
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Choice
49 futures and 31 options contracts on 20 currencies
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Australian dollar
Korean won
Brazilian real
Mexican peso
British pound
New Zealand dollar
Canadian dollar
Norwegian krone
Chinese renminbi
Polish zloty
Czech koruna
Euro FX
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Hungarian forint
Israeli shekel
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Plus:
• Choice of American or
European-Style options
Russian ruble
South African rand
•
19 cross-rate products
that are non- U.S. dollar
pairs
•
E-mini contracts –
Euro and Japanese yen
•
E-micro contracts (2009)
6 Currency pairs
Swedish krona
Swiss franc
Japanese yen
Turkish Lira available in Jan, 2009
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Forex E-micro Futures Contract Specs
Contract Size
E-micro EUR/USD
Futures
E-micro USD/JPY
Futures
E-micro GBP/USD
Futures
E-micro USD/CHF
Futures
E-micro USD/CAD
Futures
E-micro AUD/USD
Futures
12,500 euros
10,000 U.S. dollars
6,250 British
pounds
10,000 U.S. dollars
10,000 U.S. dollars
10,000 Australian
dollars
Cash-settled
Delivery
Minimum Tick
Size
0.0001 USD/EUR
(=US$1.25)
0.01 JPY/USD
(=¥100)
If USD/EUR=1.3000 If JPY/USD=93.00
then contract =
then contract =
Contract Value
$16,250 (=€12,500 x ¥930,000 (=$10,000
$1.3000/€)
x 93.00¥/$)
Trading Hours
0.0001 CHF/USD
(=1.25 CHF)
0.0001 CAD/USD
(=1.00 CAD)
0.0001 USD/AUD
(=US$1.00)
If
USD/GBP=1.5000
then contract =
$9,375 (=£6,250 x
$1.5000/£)
If CHF/USD=1.2000
then contract =
12,000 CHF
(=$10,000 x 1.2000
CHF/$)
If CAD/USD=1.2500
then contract =
12,500 CAD
(=$10,000 x 1.2500
CAD/USD)
If USD/AUD=0.6600
then contract =
US$6,600 (=10,000
AUD x
US$0.6600/AUD)
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2 months in the March quarterly cycle (Mar, Jun, Sep, Dec)
Contract Months
Last Trade
Date/Time
0.0001 USD/GBP
(=US$0.625)
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9:16 a.m. Central Time (CT) on the 2nd business day immediately preceding the 3rd Wednesday of contract month
(usually Monday), except for E-micro USD/CAD futures which is on the business day immediately preceding the
3rd Wednesday of the contract month (usually Tuesday).
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Trades exclusively on CME Globex electronic trading platform:
Sundays: 5:00 p.m. – 4:00 p.m. Central Time (CT) the next day.
Monday – Friday: 5:00 p.m. – 4:00 p.m. CT the next day,
except on Friday - closes at 4:00 p.m. and reopens Sunday at 5:00 p.m. CT.
For more information, visit www.cmegroup.com/forexmicros .
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MARGIN FX versus Exchange Futures FX
MARGIN FX
FUTURES FX
•Bought and sold over-thecounter (OTC) directly with your
broker (Bilateral)
•Bought and sold through a
futures exchange (one common
market)
•Broker is your
counterparty(principal model)
•Broker uses Agency Model
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•Delivery is T+2 (except CAD),
Roll-over interests beyond that
•Non-regulated, funds nonsegregated*
•Quote Driven
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•Free of commission but pips are
added to spreads quoted
•Depending on country, Leverage
is around 100X-500X
•Fixed Delivery, usually IMM
dates (Quarterly)
•Regulated/ Oversight,
Segregated accounts
•Order Driven
•Commission based, spreads
are actual bids/offers from
market
•Leverage based on market
conditions (around 36X to 56X)
*
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http://www.cmegroup.com/wrappedpages/clearing/pbrates/performancebond.html
CME’S FX PROVIDES COMPETITIVE LEVERAGE
FX Performance Bond / Margin
Initial
10th March, 2010
AUSTRALIAN DOLLAR FUTURES (AD)/6A
E-MICRO AUD/USD FUTURES (M6A)
BRITISH POUND FUTURES (BP)/6B
E-MICRO GBP/USD FUTURES (M6B)
USD/CAD E-MIRCO FUTURES (M6C)
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$2,700
$270
CA$286
$4,050
EURO FX FUTURE (EC)/6E
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E-MICRO EUR/USD FUTURES (M6E)
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$338
$2,430
CANADIAN DOLLAR (CD)/6C
JAPANESE YEN FUTURES (JY)/6J
$3,375
USD/JPY E-MICRO FUTURES (M6J)
NEW ZEALAND DOLLAR (NE)/6N
SWISS FRANC (SF)/6S
USD/CHF E-MICRO FUTURES (M6S)
Maintenance CMEG's Leverage
$2,500
2.75%
$250
2.75%
$2,000
2.15%
$200
2.15%
$1,800
1.89%
CA$212
2.12%
$3,000
1.76%
$300
1.76%
$3,000
2.16%
¥20,000
2.22%
$2,000
2.86%
$2,750
2.06%
S₣295
2.36%
$405
$4,050
¥27,000
$2,700
$3,713
S₣398
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In Market
margin Evolution
FX, price are polled from different LP. It is possible
the same LPs may show different prices to different platforms
Bank 1
BANK
A
Single
Bank
Portal
1.3008
Hi
Multi
MULTI
Bank
BANK
Platform
PLATFORM
(A+C+E)
Bank B
BANK
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OTC
BANK
Inter
bank
C
platform
CME
EXCHANGE
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Futures
Broker
MARGIN FX BROKERS - Retail Platforms
1.2973
Lo
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1.3009
Hi
1.2968
Lo
1.3005
Hi
1.2974
Lo
1.3008
Hi
1.2976
Lo
1.3006
Hi
1.2974
Lo
What is the actual Market Hi/Lo? What volume?
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CMEG also provides volume analysis and info by price and tick
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Relationship Between Open Interest and Price
Trend
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Putting it all together
Illu
n
o
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stra
Trend Reading
Bearish
Price
Down
Open Interest
Up
Volume
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Up
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Bullish
Short Term
rally
Up
Up
Up
Down
Up
Up
NOTE
Short Covering Rally : Price Going Up and OI going Down (Short term rally)
OI at quarterly expiration will have a huge drop at the end of expiration
(normal). Don’t analyze the first 2 weeks of the expiration
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Commitment of Traders (COT) report: Positive values
indicate long positions. Negative values indicate short
positions (Jan-Dec 2009)
IMM’s COT (Jan to Dec 2009)
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CFTC’s COT : Commercial Positions
Positive values indicate long positions.
Negative values indicate short positions.
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CME FX E-QUIVALENT TOOL : Shows Spread,
Sizes, 5 Deep Liquidity, Available 24 Hours
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http://www.cmegroup.com/e-quivalents
Learn trading FX from your educational CD
Free online class
Register at http://www.cmegroup.com/education/knowledge-center-home/index.html
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http://progressive.powerstream.net/008/00102/edu/interactive/fx/understanding-fx-markets-nb/player.html
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As a Recap
CMEG FX – venue of choice for trading FX
Liquidity is King !
Speed, Connectivity and Technology
Choice
Anonymous
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Safety - Protection for your money
Principal Vs Agency and “Market of Nature Interests”
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Resources : Volume, O.I, COT, E-quivalent, Educational library
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Trade in a Fair-Anonymous-Transparent-Liquid Market
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CME Group FX Futures
For more information on CME Group FX futures and
options visit our Web site at:
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www.cmegroup.com/fx
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Growth of Stock Index Futures
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CMEG Equity Indices vs. ETF (Comparison)
Average Daily $Volume Traded (US$ billions)
E-mini Index Futures vs. Exchange Traded Funds
$160
$150
2007
$140
2008
$130
$120
$110
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$-
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E-mini SP500
SPY
E-mini ND100
QQQQ
E-mini Dow
DIA
E-mini SP400
MDY
CME Group
ETF
CME Group
ETF
CME Group
ETF
CME Group
ETF
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Mechanics of Stock Index Futures
CME E-mini
S&P 500
CME E-mini
Nasdaq-100
CME E-mini
S&P MidCap
400
CME E-mini
S&P SmallCap
600
CME E-mini
$5 DJIA
$50 x S&P 500
Index
$20 x Nasdaq-100
Index
$100 x S&P MidCap
400 Index
$100 x S&P
SmallCap 400
Index
$5 x Dow Jones
Industrial Avg
0.25 index points
($12.50)
0.50 index points
($10.00)
0.10 index points
($10.00)
0.10 index points
($10.00)
1.00 index points
($5.00)
Limits at 10%, 20%,
30% moves
Limits at 10%, 20%,
30% moves
Limits at 10%, 20%,
30% moves
Limits at 10%, 20%,
30% moves
Limits at 10%, 20%,
30% moves
March quarterly
cycle
March quarterly
cycle
March quarterly
cycle
March quarterly
cycle
March quarterly
cycle
Trading Hours
Mon-Thu: 5:00
pm-3:15 and 3:304:30; Sun: 5:00
pm-3:15
Mon-Thu: 5:00 pm3:15 and 3:30-4:30;
Sun: 5:00 pm-3:15
Mon-Thu: 5:00 pm3:15 and 3:30-4:30;
Sun: 5:00 pm-3:15
Mon-Thu: 5:00 pm3:15 and 3:30-4:30;
Sun: 5:00 pm-3:15
Mon-Thu: 5:00 pm3:15 and 3:30-4:30;
Sun: 5:00 pm-3:15
Trading Ends
at
8:30 am on 3rd
Friday of month
8:30 am on 3rd
Friday of month
8:30 am on 3rd
Friday of month
8:30 am on 3rd
Friday of month
8:30 am on 3rd
Friday of month
Cash
Settlement
Vs. Special Open
Quote (SOQ)
Vs. Special Open
Quote (SOQ)
Vs. Special Open
Quote (SOQ)
Vs. Special Open
Quote (SOQ)
Vs. Special Open
Quote (SOQ)
20,000 standard
S&P 500 contracts
10,000 standard
Nasdaq contracts
5,000 standard
S&P MidCap 400
contracts
25,000 standard
S&P SmallCap 600
contracts
50,000 E-mini DJIA
contracts
“ES”
“NQ”
“EMD”
“SMC”
“YM”
Contact
Multiplier
Minimum Price
Fluctuation
(Tick)
Price Limits
Contract
Months
Position Limits
or
Accountability
Ticker
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U.S. & Asian Indexes
Comparing stock index futures (12/7/09)…
Stock index futures constructed with same basis design worldwide
E-mini S&P 500
E-mini Nasdaq-100
E-mini ($5) DJIA
Hang Seng
HSCEI
CSI 300 *
KOSPI 200
S&P CNX Nifty
Taiwan Taiex
Nikkei 225
Nikkei 225
Nikkei 225
Exchange
Contract
Multiplier
Index
Curr
Curry
Value
Cnt Value
(USD)
CME Group
CME Group
CME Group
HKEx
HKEx
CFFEX
KRX
NSE
TFE
CME Group
CME Group
CME Group
$50
$20
$5
HKD 50
HKD 50
CNY 300
KRW 500,000
INR 50
TWD 200
¥500
$5
¥1,000
1,103.25
1,783.65
10,390.11
22,324.96
13,358.30
3,668.83
215.55
5,066.70
7,775.64
10,167.60
10,167.60
10,167.60
USD
USD
USD
HKD
HKD
CNY
KRW
INR
TWD
JPY
USD
JPY
1.00
1.00
1.00
7.7501
7.7501
6.8294
1,153.38
46.5713
32.246
89.51
1.00
89.51
$55,163
$35,673
$51,951
$144,030
$86,181
$161,163
$93,443
$5,440
$48,227
$56,796
$50,838
$113,592
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U.S. & Asian Indexes
Popular Asian indexes…
• Includes Hang Seng, HSCEI,
KOSPI, CSI 300, Taiex, Nifty,
Nikkei and others
• Futures offered on Asian
exchanges including HKEx,
CFFEX, KRX, NSE, TSE,
OSE and others
• CME Group also offers USD
and JPY denominated
Nikkei 225 futures
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• CME Group recently
announced plans for Nifty
listing on Globex
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Spreading U.S. & Asian Indexes
Identifying appropriate spread ratio…
• Find “Spread Ratio” that equalizes monetary value of two spread legs
translated into a common currency
• On Dec. 31, 2004, Hang Seng @ 14,230.14 with HKD/USD rate @ 7.7726 …
futures valued @ $91,540 [= (HKD50 x 14,230.14) ÷ 7.7726]
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• S&P 500 @ 1,211.92, E-mini futures valued @ $60,596 (= $50 x 1,211.92)
• THUS … must balance 2 Hang Seng futures with 3 E-mini S&P 500 futures
Spread Ratio = ValueHang Seng futures ÷ ValueS&P futures
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= $91,540 ÷ $60,596
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= 1.51 or 2 Hang Seng to 3 S&P futures
Spreading U.S. & Asian Indexes
Fluctuating spread ratios…
Spread ratios change as function of fluctuating futures contract values
Hang Seng/S&P 500 ratio was 1.51 in Dec-04 … but ratio changed to 2.62
(or 2-to-5 Hang Seng to S&P futures) by Dec-09
12/31/04
12/30/05
12/29/06
12/28/07
12/26/08
12/04/09
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Hang Seng vs.
S&P 500
1.51
1.54
1.81
2.37
2.10
2.62
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KOSPI 200 vs.
S&P 500
0.92
1.41
1.41
1.74
1.29
1.68
Taiwan Taiex
vs. S&P 500
0.64
0.64
0.68
0.70
0.61
0.86
Spreading U.S. & Asian Indexes
Spread performance …
• Graphic based upon Dec04 spread ratios
• Asian indexes outperformed S&P 500 due to
expansive economies
• USD investments regarded
as “safe haven” during
2008 crisis, reversing
trend … at least
temporarily
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Spreading U.S. & Asian Indexes
Example of Hang Seng/S&P 500 spread…
• 2008 financial crisis caused investors to seek refuge in USD
investments
• THUS … sell Asian/buy US indexes in weak economic conditions
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Sep-08 Hang Seng Futures
Sep-08 E-mini S&P 500 futures
5/2/08
Sell 2 @ 26,120 = $335,108
Buy 5 @ 1,417.50 = $354,375
8/15/08
Buy 2 @ 20,951 = $268,169
Sell 5 @ 1,299.75 = $324,937
Profit of $66,939
Loss of $29,437
Net Profit of $37,502
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Stock and FX correlation…explored
Stock & FX correlation?
• Generally a positive
correlation between other
Asian currencies and
national stock markets
including South Korea,
Taiwan, India
• Other Asian currencies
pegged to USD including
HKD and CNY
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Spreading U.S. & Asian Indexes
“Correlation trade” …
• Hedge funds spread USD
and JPY Nikkei futures as a
“correlation trade”
• Japanese economy tends
to strengthen as USD
strengthens and vice versa
• Observed premium of up to
100 points in USD Nikkei
vs. JPY Nikkei in recent
years
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Advantages of Spreading Stock Index Futures
There are many advantages to spreading stock index futures which
include:
• In general, lower risk with spreads than with out-rights
• Ability to profit in up and down market
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• In general, lower performance bond margins (for spreads recognized by
Clearing House)
• Roll cost consideration for longer term position
• Cheaper than doing strategy with baskets of stocks or ETFs
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• You can do reverse of this spread if you choose
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• Liquidity good enough to do short term trades
38
CME Group Stock Index Futures
For more information on CME Group Stock Index
futures and options visit our Web site at:
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www.cmegroup.com/equities
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39
THANK YOU
Contact details:
KC LAM
Director of FX – Asia Pacific
kc.lam@cmegroup.com