Recently The Finance Hive brought together a small group of Head FX Traders looking to expand their use of futures to talk about the reasons why, the hurdles holding them back and some of their requests for innovation.
The group were quick to establish the benefits of using Futures, including price transparency, a reduction of IM requirements and Counterparty Risk. Despite factors holding back adoption, like lack of education of asset owners and an unwillingness from banks to invest in the automation of FX Futures liquidity provision, the group wanted to brainstorm the next steps to increase adoption.
This short report summarises the key findings from the group’s discussion, along with a response from Marc Putter, Head of Trading at Transtrend.
How would the “translation service” between FX Futures and OTC liquidity work?
A first step would be that the exchange matches the futures bid with the OTC forward offer. Dates already match, risk directions are exact opposites, and sizes would be matched as much as possible. A second step would be to match up the futures bid with an OTC spot offer and a swaps price in the market. This is a more complicated step but with the various platforms available to an exchange, it is not an insurmountable challenge. Head of Trading, Transtrend
To read more, download the report to view the full findings.