A Highly Volatile And Liquid Market (Korea)

Discussion in 'Options' started by shrewd, Dec 4, 2001.

  1. shrewd


    I'd like to introduce Korean Derivatives market to you.

    Currently, as D-RAM Price moves up, the Korean stock market becomes very bullish. Though the market is originally very volatile, current market's implied volatility is over 40%. Trading volume of ATM option on expiration day is about 1 mil.

    According to the Korea Stock Exchange, Kospi 200 Index Option traded 193.8 mil contracts in year 2000, that is 9 times more than S&P 500 Index Options. Surprisingly, recently, the trading volume is increased to 2 mil. contracts a day.

    Moreover, as evident with high percentage(over 60%) of online trading volume, online trading environments such as line, server and settlement system are very stable and efficient in Korea.

    Post any comments and questions if you have.

    From Korea
  2. Andy, I'm glad you brought this up. For sometime, I had been watching how the volume on Kospi 200 Options contract has skyrocketed in such a short time to become the most liquid contract on the planet!!! Its growth is simply amazing. If the stats I have read is correct, it's three times as liquid as the Eurodollars on the Merc and the Euro-BUND on Eurex; the former number one and two contracts in terms of volume.

    Do you know how this contract exploded into the scene? What percentage of volume is from retail vs. institutional? Is it pit traded or fully electronic? What does it take for a foreigner to trade in Korea? What about taxes? How wide are quotes?

    Any insight from you or anyone that actually trades this contract from America or Europe would be greatly appreciated.

    I'd love to be able to daytrade this thing...
  3. Yes. I'm really impressed and interested in Korea's Kospi 200 futures & options trading volume. I just cannot explain the extremely high trading volumes, especially for the options!

    Can you elaborate on the fee structures such as exchange fees, levies, government taxes if any, and normal commission rates charged by Korea's online brokers? Any regulatory limitation to overseas/non-Korean traders?

    Due to the relatively small contract size (1 full point is 100,000 won, that's about 80 usd, I mean options; futures is 5 times that), today's range (of cash) is 82.54-87.26, so trading cost is a real matter to consider. And it's not easy to find an online broker/platform outside Korea to trade Kospi 200 fut & opt.

    Def, will IB introduce Kospi 200 fut & opt to its "coming soon" multi-currency futures & options on futures account? I think this market makes much more sense (in terms of trading volumes, volatility, and fewer competitors outside Korea) than the recently introduced Sydney futures. And physically located near your Hong Kong desk.
  4. It took a long time to type the above message so Navigator's appeared before mine.
    I'm not good in English.

    If anybody interested in the "amazing" trading volumes, have a look here:

    If pop-up dialog asking you to install Korean language support, just click "Cancel" to go on.

    To my knowledge, Korea Stock Exchange & Korea Futures Exchange, like Hong Kong and Taiwan's exchanges, are all fully electronic. This is why I asked IB to enter Korea market. SGX-DT (was SIMEX) is still majorly open out-cried. No knowledge of, and no interest in, the Japanese markets.

    Andy's from Korea. So Andy, more details please. I found only one online broker (outside Korea) to offer access to Kospi 200 futures, that is HK-based KGI Securities. Very basic, far away from the style of IB or Patsystems.
  5. def

    def Sponsor

    i'm very much aware of the korean markets and the great liquidity. part of it is due to the smaller contract size but the other part is that i think over 80% of koreans trade on line. a great % of the volume is retail. Costs are high for brokerage. I've been looking into setting up prop trading operations there and if we get decent access and a decent fees we may offer access somewhere down the line. that would depend on a number of regulatory hurdles as well. in the meantime, there are a number of korean firms offering the service but there may be limits on non-korean trading. i'm not up to speed on all the rules. Trading is 100% electronic. you can not short stock and thus i imagine you would only be interested in trading the futures or index options.

    The web site for the exchange has a list of brokers. I've seen some of the software and it is pretty good. however, everything i've seen has korean graphics/language. i don't have time to search for the link now but if you don't have luck or can't read the web site, let me know and I'll post a few names or do some minor translation.
  6. def

    def Sponsor

    sci-trader, you posted the links - thanks.

    i know the guys who run KGI in HK very well. They are a reputable firm bankrolled by a taiwanese tycoon. I think they bought a korean brokerage during the financial crisis.

    As for IB entering the market, all in due course.
  7. shrewd


    Thanks for your comments and questions.
    Yesterday, 11mil. option contracts of KOSPI 200 were traded just in a day.
  8. Incredible!!!

    Last year when my first acquintance of Kospi 200, for a busy trading day the futures volume was around one hundred thousands, while the options half a mil. Yesterday it's more than two times for the futures and twenty times for the options.

    Though small size for the options contracts (the multiplier is 80 usd if dlr/won = 1250), a rough comparison to QQQ:

    Kospi 200 options QQQ options
    underlying mkt price 84 42
    daily range (rough est.) 3~5 pt 1~2 pt
    multiplier 80 100
    min. tick movement .01 .05
    normal bid/ask spread .01 .05
    order routing single dest. 5(AMEX,CBOE,ISE,PHLX,PSE)
    tradable sisters Kospi 200 futures QQQ, ND&NQ futures
    trading account same with fut. separate a/c & reg. to fut.
    yesterday's vol. > 10,000,000 < 200,000
    commission rate ? (Andy?) 1.95 (IB)
    trading accessibility limited, local interest Worldwide interest
    quote availability limited, local or inst. handily available
    future development move from KSE to uncertain SSF dev.,
    KOFEX on Jan.1, SEC/CFTC reg. dev.,
    2004 IB's all-in-one a/c!!!

    not complete and not guaranteed to be accurate, but...

    Def's comment about the amazing volumes is exactly what I think. Still hard to figure out that that two reasons are sufficient to discount the incredible trading activity in Korea's derivative markets. Actually Kospi200 options contract is not smaller than that of QQQ, and US's internet intrastructure and internet population, equity market scale, worldwide interest, etc., are all beyond competition. Maybe americans are more diversified, abundent of choices of vehicles/instruments, and that damn of "institutional investors". - now you know that I'm strongly biased!
  9. The above comparison format is not WYSIWYG as what I edited.

    Sorry for the inconvenient and unreadable layout.
  10. def

    def Sponsor

    there are a couple of cultural items that go into the mix as well. I'll just add one....

    Did you know that Korean tradition dictates that the wives handle the money? (things aren't as traditional as they once were of course but it is certainly one way to keep the men in line). I'm not sure what % of the trading is done by housewives these days but thought that would be an interesting tidbit. I've been up to Korea many times and still haven't come across someone who succesfully explained to me where the volume comes from. In any event, it is pretty wild watching option spreads which can be 1 tick wide 10 thousand up.

    As for volumes increasing, the Korean won was hit pretty hard during the Asian crises and could explain some of the increase. As another aside, I am pretty sure I read last week that the multiplier is going to double as I can imagine that the volumes have to be taxing the exchagne systems.
    #10     Dec 6, 2001