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Product of the month: FX Derivatives

Release date: 21 Aug 2014 | Eurex Exchange

Product of the month: FX Derivatives

Make the most of one of today’s most dynamic markets with FX derivatives

Interest rates or dividends are widely-used underlyings for derivatives, as are stock price indexes, that stand for the aggregated price of a standardized basket of assets and make it tradable.

But how can the respective exchange rates of currencies against each other be regarded as an asset class in the same sense?  FX trading is always about the relative value of one kind of currency expressed in another, so nobody can be "bullish or bearish in FX". The EUR/USD rate expresses the amount of EUR per 1 USD, but on the other side, USD expressed in 1 EUR as the inverted ratio, and the FX market always needs participants to be active on both.

FX markets are comparatively young, as exchange rates of the major world currencies started to change constantly against each other only in the 1970s. Economists at that time assumed that all exchange rates were in principle completely predictable by calculating the relation of prices of similar baskets of goods and services in different countries, including interest rates as prices for lending money in a certain currency. However, the market participants noticed that this is not the case. On one hand, the exchange rates are not predictable at all by simple economic variables, but on the other hand, rate movements show clear patterns that can be used to derive trends.  FX was found to be much better suitable for chart analysis than e.g. equities, making it very attractive for the retail market. In many countries, a wide range of investors has engaged in FX trading, applying carry strategies or trend following with often quite positive returns. 

The current framework for global FX trading is centered around interbank trading and has been in place since the 1990s. In recent years, the regulatory focus on default protections through CCP clearing and on transparent trading venues has been putting more and more the spotlight on listed and centrally-cleared FX derivatives.

According to the BIS Triennial Central Bank Survey trading in foreign exchange markets averaged $5.3 trillion per day in April 2013 with the growth of foreign exchange trading driven by financial institutions.
Foreign exchange market activity has become ever more concentrated in a handful of global financial centers. The vast majority of global FX trading in 2013 has occurred via the intermediation of dealers’ sales desks in five jurisdictions: the United Kingdom (41%), the United States (19%), Singapore (5.7%), Japan (5.6%) and Hong Kong SAR (4.1%).

More opportunities, less risk
Eurex Exchange’s new FX Futures and Options offer combines best-practice OTC market conventions

with the transparency and minimized risk of exchange-traded, centrally cleared derivatives. That means, you benefit from mitigated counterparty risk for each transaction until the final settlement day through our own CCP, Eurex Clearing, as well as a CLS settlement solution.

Trading FX on Eurex Exchange brings the added benefit of a “one-stop-shop” with more than 2,000 products in nine asset classes all on a single platform.  This deep offer facilitates portfolio diversification and creates new opportunities for hedging and spreading.

Eurex Exchange is the only exchange to offer you both, FX futures and options. Also our FX options expire on the spot market rather than on the futures. We offer futures and options on six of the most liquid currency pairs:


At a glance: Benefits of FX on Eurex Exchange

  • Highly competitive transaction costs with no membership fees.
  • Market Makers provide liquidity.
  • Market transparency means a level playing field & access to rich data to facilitate trading decisions.
  • Available off-order-book via our Eurex Trade Entry services.
  • Running on best-in-class technology with expanded functionality and minimal latency available on a European-based matching engine.
  • Eurex Clearing mitigates counterparty risk for each transaction until the final settlement day.
  • Limited settlement risk through the well-established CLS system.