Futures and options booming

By Anuj Gangahar in New York

Published: March 10 2008 21:03 | Last updated: March 10 2008 21:03

The global volume of futures and options trading soared by 28 per cent last year, the largest annual increase since 2003, fuelled by a sharp rise in equity market volatility and a rush to commodity related contracts.

More than 15bn futures and options contracts changed hands during 2007 at 54 exchanges across the world, according to the Futures Industry Association.

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He added that trading volume tends to ebb and flow in unpredictable ways, and the current wave of growth may well subside. “The good news is that volume levels are rising almost everywhere we look, and that speaks well to the long-term health of our industry.”

The upward trend in volume is taking place across all segments of the exchange-traded marketplace, some more markedly than others, according to the survey. Equity futures and options, both index and single stock, were the most powerful growth drivers. On a combined basis, equity products accounted for 64 per cent of the total volume last year, and 71 per cent of the total increase in volume. The sharp rise in volatility as a result of the credit crisis led to more traders hedging their exposure using derivatives contracts, or in some cases betting on future volatility.

Commodity products also had a burst of growth in 2007, helped by the greater adoption of electronic trading, the boom in biofuels, and stronger interest among institutional investors.

Growth is also taking place across all regions of the exchange-traded marketplace. China, though still largely closed to foreign participants, has become a huge force in agricultural and metals futures trading. The National Stock Exchange of India continues to move steadily up the lost of the largest derivatives exchanges, and Hong Kong Exchanges and Clearing more than doubled its volume last year.

Copyright The Financial Times Limited 2008