Derivatives market sees liquidity slump in April
Trading volume of derivatives plummeted in April in parallel with the sluggishness of the underlying market, showing an increasingly close link between these two markets.
When the underlying market falls, investors will theoretically seek opportunities to make profit on the derivatives market, because it allows them to earn profits even as the underlying market declines.
The liquidity of the derivatives market often soars when the underlying market fluctuates. Thus, the derivatives market is an effective solution to retain investors, helping avoid a situation in which they withdraw from the stock market and cause collapses. But things moved in reverse in April.
According to statistics from the Ha Noi Stock Exchange (HNX), in April this year, along with the decline of the stock market, transactions on the derivatives market fell sharply compared to March. The average trading volume decreased by 40.45 per cent to about 80,700 contracts per session.
The session on April 22 had the lowest trading volume during the month – also the lowest level since the beginning of the year – reaching nearly 56,300 contracts. The session on April 9 had the highest trading volume, reaching over 103,900 contracts.
Notably, in the last trading session of the month on April 26, the derivatives market had an impressive session. Total trading volume for the session was 102,677 contracts – only slightly higher than the average figure of the previous month, 100,000.
The average trading value of the VN-30 Index basket in April reached just VND1.4 trillion (US$59.9 million), down 30 per cent compared to the middle of March. The trading value of futures contracts on April 19 reached nearly VND950 billion, equal to 50 per cent of the average trading value of VN-30 basket in March.
The open interest (OI) – the total number of open or outstanding options and futures contracts – decreased by 10.93 per cent from the previous month. By the end of April 29, the OI volume of the whole market reached 21,267 contracts.
The number of derivatives trading accounts continued to increase. At the end of April, the figure reached 70,112 accounts, up 4.04 per cent over the previous month.
In April, the transactions carried out by individual domestic investors accounted for a large proportion but still decreased significantly compared to the previous months, standing at 92.9 per cent of the total derivatives trading volume.
The proportion of transactions carried out by domestic institutional investors (including self-trading) increased sharply, reaching 6.84 per cent, 3.2 times higher than the previous month.
Excluding self-trading, the trading value of this group nearly tripled compared to March, reaching more than 185,000 contracts, highest level since the inception of the derivatives market.
Transactions by foreign investors in April decreased according to the general trend of the stock market, reaching 8,165 contracts, equal to 60 per cent of the number seen in the previous month, accounting for 0.27 per cent of the total trading volume of the whole market.