Economic Derivatives are perhaps the most innovative creation of the last decade in financial instruments.
This new market enables market participants to either hedge an exposure or take a position directly tied to the release of economic indicators. The wide variety of instruments allows traders to tailor positions including broad directional outlooks, volatility based views or very precise opinions to each economic indicator.
CMEŽ Economic Derivatives offer a broad range of digital and vanilla options as well as forwards that will trade the morning prior to the release of economic data, including U.S. non farm payrolls, the Institute of Supply Management's PMI, weekly initial jobless claims, advance retail sales, European inflation, the International Trade Balance and GDP. Before the emergence of economic derivatives, funds and risk managers typically resorted to proxies such as bonds, equities, foreign exchange, and related derivatives.
Economic Data Derivatives are traded in a mutualized order filling process called a universal price auction (CMEŽ Auction Markets Guide). This patented auction technology offers a powerful mechanism to aggregate liquidity and fill orders efficiently and cost-effectively. It also offers the ability to enter limit-price orders and, whenever possible, fills those orders at the market price instead of at the limit price. The CMEŽ economic derivatives offer portfolio diversification and overlay opportunities and better management of exposure to economic uncertaities without the basis risk.
The main exchange for economic derivatives is the Chicago Mercantile Exchange (CMEŽ) Economic Derivatives offer a broad range of digital and vanilla options as well as forwards on the outcome of economic data including the U.S. non-farm payrolls, U.S. gross domestic product, Euro zone HICP inflation index, U.S. initial jobless claims, the Institute of Supply Management's PMI index, U.S. international trade balance and advance retail sales. The wide variety of instruments allows investors to tailor very precise hedges or exposures to each economic indicator.
This will enable market participants to either hedge or take an exposure directly tied to the release of economic indicators. See this study for a short background. Only Eligible Contract Participants, as defined in Section 1a(12) of the Commodity Exchange Act, are permitted to trade Economic Derivatives at the CMEŽ. Investors include hedge fund managers, relative value players, dealers and proprietary traders. Other potential users are governments and local councils or corporate treasurers.
The change in Non farm Payrolls as determined and published by the U.S. Department of Labor, Bureau of Labor Statistics, estimating the monthly change in the total number of employees on non-agricultural payrolls
Quarterly estimate of Real U.S. Gross Domestic Product expressed as a seasonally adjusted annual rate, for the calendar quarter ending in the month immediately preceding the release date, published by the U.S. Department of Commerce.
The monthly level of the Euro zone Harmonized Index of Consumer Prices Ex-Tobacco, as published by Eurostat. A measure of inflation designed for international comparison as required by the treaty establishing the European Monetary Union
A composite of the initial filings for state unemployment benefits, adjusted to reflect seasonal hiring patterns from the U.S. Department of Labor. Also incorporates seasonally adjusted, initial Unemployment Insurance weekly claims.
The change in the Institute for Supply Management Purchasing Manager Index, an index constructed by surveying more than 400 purchasing agents on recent trends in their orders, production, employment, delivery speeds, inventories and prices for products purchased
Monthly estimate of the balance of payments on U.S. International trade in goods and services, expressed in billions of current U.S. Dollars, by the U.S. Department of Commerce
The monthly percentage in retail sales (dollar amount of spending) not counting automobiles, published by the U.S. Department of Commerce adjusted for normal seasonal variations.
The "core CPI", for all urban consumers covering all items less food and energy, published monthly by the Bureau of Labor Statistics for the US.