The recent past has shown a growing interest among currency traders to trade in Asian currencies, with the currency contracts listed on exchanges in Dubai and Singapore witnessing a growth or 30% or more in the year 2015.
This growth was accompanied by the growth of many proprietary trading fi rms coming out of China, India, South Korea etc. These prop fi rms have taken particular interest to trade these Currencies viz INR, CNH, CNY, IDR, MYR etc. primarily due to their familiarity with the regional currencies and the macro and micro factors affecting these currencies.
For a currency like Indian Rupee (INR), which has a vibrant onshore futures exchange and also a very liquid offshore market in the forms of exchange traded futures and Non Deliverable Forwards (NDF) there could be considerable difference between onshore and offshore prices. fi rms ready to take on the stifl ing bureaucracy to access the onshore futures are able to generate very high returns from arbitraging between these Onshore and Offshore markets.
The same applies for KRW, which has a very liquid onshore and off shore market.
The recent global or local events like the political instability and the crude oil price crash badly affecting Malaysian economy, the PBOC‘s move to weaken the Yuan, the recent elections in Philippines, or the commodity rout affecting the Indonesian economy, have all led to increased volatility in these currencies. This heightened volatility has only increased the interest of these prop firm’s to trade in these currencies and capitalize on the opportunities thrown by this volatility.
Most of the Asian economies which could be categorized as Emerging Market (EM) economies have been opening up slowly to foreign inventors and have seen signifi cant infl ows from Developed Markets (DM) into stocks and government securities. This has also led to the increased demand for currency instruments as a hedge for currency exposure.
Another point to note here is that most of these countries do not have a developed onshore currency futures markets with the exception of India, Korea and Thailand. In addition, Korea and Thailand are not open to foreigners. Such restrictions have led to development and increased volume in OTC NDF mostly traded out of regional centres like Singapore, London and New York after Asian hours.