Bearish European retail investors are hedging FX exposure with Euro Derivatives, says Spectrum Markets

Rick Steves

“We can identify a growing interest among retail investors in Euro-linked Turbo Warrants as a way of gaining specific, targeted exposure to global FX markets.”

SERIX sentiment data for European retail investors for September published by pan-European trading venue Spectrum Markets has highlighted strong bearish trading on the Euro against the British Pound and Japanese Yen, in contrast to wider market sentiment on these currencies.

Spectrum Markets is a venue specialized in securitized derivatives and has found that Euro-linked currency derivatives are becoming more popular among European retail investors as the proportion of Euro currency pairs traded on Spectrum Markets doubled during this year, with the all-time record high being 163.9 million securitised derivatives traded in September.

“Explains some of the bearish activity we’re seeing on the Euro”

The SERIX value indicates retail investor sentiment, with a number above 100 marking bullish sentiment, and a number below 100 indicating bearish sentiment. (See below for more information on the methodology).

Michael Hall, Head of Distribution at Spectrum Markets, said: “We know retail investors active on Spectrum Markets typically use these derivative products as part of a wider strategy, for example to gain a leverage effect or hedge position elsewhere in their portfolio. It’s likely this kind of tactical exposure explains some of the bearish activity we’re seeing on the Euro, particularly against the Pound and Yen which have both had a pretty tough time recently.

“We can identify a growing interest among retail investors in Euro-linked Turbo Warrants as a way of gaining specific, targeted exposure to global FX markets. As markets are becoming increasingly volatile, FX risks are rising, and some investors are seeking to hedge currency exposure with securitised derivatives in order to build some protection into their portfolios. International companies have always hedged against currency risk to some extent, and retail investors are now following the same principle.”

Euro-linked Turbo Warrants for short-term tactical trading

The trading of Euro-linked Turbo Warrants on Spectrum Markets has doubled in the last two months when compared to the start of the year, the firm has reported, pointing to increased interest from retail investors, particularly for short-term tactical trading in response to events like the UK government’s mini-budget and the Bank of Japan’s recent currency interventions.

Last month, Spectrum registered a record high of 163.9 million securitised derivatives traded on the platform, with 37.3% of trades taking place outside of traditional hours.

87.8% of the traded derivatives were on indices, 3.5% on commodities, 7.6% on currency pairs, 0.8% on equities and 0.3% on cryptocurrencies, with the top three traded underlying markets being DAX 40 (28.3%), S&P 500 (23.9%) and NASDAQ 100 (16.4%). Looking at the SERIX data for the top three underlying markets, the DAX 40 shifted to a neutral 100 from 99. Meanwhile, the S&P 500 slightly increased from a bearish 97 to 102 and NASDAQ 100 saw a similar rise, from 98 to a bullish 102.

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