The New York Board of Trade has introduced futures and options on the value of the euro against a basket of five major currencies. Nybot says the new Finex Euro Index (ECX) products are intended to complement its well-established US dollar index range.
The contracts are based on the geometric average value against the euro of the US dollar, British pound, Japanese yen, Swiss franc and Swedish krona. Both futures and options trade in Nybot’s currency pits in New York and Dublin.
Rationale
Explaining the rationale for the euro index products, Nybot’s chairman, Frederick Schoenhut, says: “The euro is the currency of the world’s second-largest economic entity and the marketplace needs a tradable index that accurately gauges its value. Our exchange has a history of innovation in currency products, and with the record year we just completed in our currency markets, the New York Board of Trade is the ideal place for the first euro index contracts to trade.”
 |
“There’s a need to understand why individual currencies are moving. Trading an index removes some of the complexity” Anthony Scamardella, Nybot |
The new contracts will be supported by six market makers, including Deutsche Bank, plus locals trading in the pits. Jason Batt, head of FX index products at Deutsche, believes the product will soon find favour with a wide audience. “We’ve invested in FX index products,” he says. “Indices are widely used in other markets, such as equity and fixed income, and I don’t see any reason why there wouldn’t be similar appetite for these products in FX.” He adds that potential end users include hedge funds, commodity trading advisers and also corporations looking to hedge their euro exposure. Batt believes the index products are well suited to novice FX participants, particularly those coming from the retail sector.
Education
Anthony Scamardella, vice-president, marketing, at Nybot, fully agrees with this last point. “We believe there’s a growing interest in treating FX trading as investments. The market is attracting new participants, especially from the retail sector.
“However, there’s a certain amount of education needed to trade FX profitably. There’s a need to understand why individual currencies are moving. Trading an index removes some of the complexity. The index performs a similar role to an equity index in that it gives broad exposure with less risk,” he says.
Scamardella is optimistic that the new index will ultimately attract the same level of activity as the exchange’s dollar index. Open interest in this product suite currently stands at about 30,000 contracts or, in nominal terms, about $3.5 billion. Looking ahead, Nybot is looking at introducing electronic trading alongside the existing open outcry method for its FX products, which will help their distribution.
