The New York Board of Trade will on Thursday become the first futures exchange to offer a contract based on the trade-weighted euro.
The Nybot, in common with the Chicago Mercantile Exchange and Eurex US, already offer futures and options based on a range of euro currency pairs, from the US dollar and the yen to the Hungarian forint.
However, the dollar indices operated by the Nybot and the CME have hitherto been the only exchange-traded contracts that aim to replicate the value of a currency against a basket of rivals.
“Our euro contracts are useful financial instruments for those who wish to hedge currency risk exposure or who want to take an investment position in the euro without exposing themselves to the risks of trading a single currency pair,” said Frederick Schoenhut, chairman of the Nybot.
Tony Norfield, global head of FX strategy at ABN Amro, envisaged the index appealing both to companies looking to hedge euro currency risk against a basket of currencies and to active traders who have either a bullish or bearish view on the euro and thus wish to trade a purer measure of the single currency.
While a small handful of banks operate their own euro indices, Mr Norfield believed some traders would value the anonymity and greater independence of an exchange-traded contract, although he was unconvinced that trading volumes would be high enough to generate sufficient liquidity.
The Nybot contract, which will trade in New York and Dublin, is based on a weighted average of the euro against five other currencies; the US dollar, sterling, yen, Swiss franc and Swedish krona. This is less comprehensive than the 23 currencies the European Central Bank uses to calculate the euro’s nominal effective exchange rate.
However, Nybot claims its contract has a “significant correlation” with the ECB’s measure. By limiting itself to five highly liquid currencies it says market makers will be able to offer the contract at a more attractive price. The contract size will be 1,000 times the index, or roughly €100,000.
Trading in FX futures and options has risen in unison with higher spot volumes. Nybot says volumes in its currency pairs rose 53 per cent last year, doubling quarter-on-quarter in the final three months of the year.
The CME has also announced a stream of records in recent months.
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