Spot EM FX vs EM FX derivs
What size is the spot em fx business when compared to em fx derivatives.
Ive heard spot fx is generally not as profitable as fx derivs, whats the extent of this and considering spreads are wider on EM fx relative to G10, shouldn’t EM fx spot be more profitable than G10 spot fx?
Great question… I’m also curious. As a bit of a follow up, can anyone also comment on EM rates vol? I’ve heard that this space is smaller than EMFX vol but still curious to see how it is under an EM macro desk. Do they trade all types of products? EMFX spot, vol, rates, rates vol, forwards, swaps? Thanks
Ah, you've got a keen eye for the details! Based on the most helpful WSO content, it's true that the profitability between spot FX and FX derivatives can vary. Spot FX, especially in emerging markets, can have wider spreads which might suggest higher profitability. However, it's not just about the spreads.
FX derivatives, on the other hand, can offer more complex and diverse strategies, which can lead to higher profitability. They allow traders to hedge against future price movements, speculate on price movements, and earn from the time value of money.
As for the size of the spot EM FX business compared to EM FX derivatives, it's a bit tricky to pin down exact numbers without specific data. However, it's generally understood that the derivatives market is larger due to its complexity and the variety of instruments available.
Remember, while EM FX spot might have wider spreads, it also comes with higher risk due to the volatility of emerging markets. So, it's not always about chasing the highest spreads, but about managing risk and reward.
Keep in mind, this is a simplified explanation and the actual trading strategies and decisions can be much more complex. It's always a good idea to dive deeper into the WSO Courses and Networking Guide for more insights. Keep those questions coming, I'm here to help!
Sources: Q&A: BB Fixed Income Trader, 2nd Year Analyst, What’s an EB?, The Qualifications of an EB, Hedging Futures Spreads (Intra-market) - Asking EXPERIENCED Traders
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