Hedgers Emerge, Using Derivatives Against Volatility

Because local stock prices, interest rates and the won-dollar exchange rate are increasingly volatile, analysts say, more investors are turning to derivatives products.

On the Korea Stock Exchange, transactions in Korea Composite Stock Price Index 200 futures and options reached their highest level Thursday, when trading volume amounted to 206,000 contracts, breaking the previous record of 169,000 deals on Jan. 17.

Daily turnover hit 7.3 trillion won ($5.6 billion), surpassing the 6.3 trillion won recorded on Jan. 17.

Options transactions also hit a record high, with 4.1 million contracts worth 284.1 billion won changing hands.

The daily average trading volume of the Kospi 200 futures contracts has been on a steep rise since 1999, growing from 69,000 contracts then to 81,000 last year to 112,000 so far this year. Trading in Kospi 200 options contracts surged fivefold to some 1.5 million this year from 321,000 two years ago.

On the Korea Futures Exchange, futures and options in government bonds and U.S. dollars jumped to a daily average of more than 30,000 contracts this month from fewer than 10,000 last year, while an average 8,300 U.S. dollar futures contracts are now trading daily, compared with 5,500 in 2000.

"As investors have become conscious about risks from changing interest and exchange rates, trading of derivatives will likely be more active," said Cho Yoon-hee, an executive at the Korea Futures Exchange.

by Rah Hyeon-chul