NDFs have been on the rise


Non-deliverable forwards, otherwise known as NDFs, have been largely side-lined by retail traders, when compared to the more traditional currency pairs. This is attributable to limited access to streaming NDF prices. In fact, until recently, the only way for a retail investor to place an NDF trade was over the phone or via a chat facility. However, NDFs have been actively traded since the 1990s at an institutional level, with a steady increase in turnover and volatility particularly over recent years. This has provided alternative opportunities for institutions to hedge, invest, and diversify their portfolios.

What are Non-Deliverable Forwards (NDFs)?

NDFs are over-the-counter (OTC) instruments, and are commonly quoted for a set time period of a month, and up to a year. It is a two-party currency derivative contract, that at maturity, exchanges cash flows between the specific NDF trade and the prevailing Central Bank fixing rate. The largest NDF markets to date are the Chinese Yuan, Indian Rupee, South Korean Won, New Taiwan Dollar, and Brazilian Real.

Over the last 15 years, the NDF market has been evolving with great innovation through electronicautomation, and algorithmic trading. This, in return, has improved liquidity and created a more transparent environment for traders. While the traditional FX market has evolved beyond recognition, NDFs and emerging market currencies are now catching up.

Up until now, retail traders in Brazil for example, were unable to trade their local currency, the Brazilian Real; however, as demand for NDF's becomes more prominent, a significant shift in the market has opened up the opportunity for traders to hedge, diversify and invest their Brazilian Real exposure.

Institutional NDF turnover within the last decade has seen a steady increase of some 300% in trading volume, with some 43% over the past 12 months. Institutional trading volumes in NDF's have increased as a result of a greater degree of trading platform sophistication and market efficiency.

What does this mean?

NDFs today account for roughly 4% of the total FX volume, according to the Bank for International Settlements (BIS), with more than half of the market's activity concentrated in a handful of emerging market currencies. Average daily volume has nearly doubled in the past three years as institutional traders look to develop new and significant opportunities within this booming market.

A small number of retail brokerages, have now started aggregating streaming liquidity from providers and offer executable streams to their clients for both one-month and broken-dated NDFs.

A great example of a broker that is at the forefront of this NDF revolution and has been instrumental in being part of the retail NDF market expansion, is Sheer Markets, a financial institution offering steaming retail NDF CFDs alongside more than 1,400 CFD trading instruments, including FX, EMFX, indices, commodities, cryptos, and stocks.

The Sheer Marketsproduct range offers traders looking for opportunities to diversify their portfolio with a broader scope of liquid markets.

For more information, or to sign up with Sheer

Markets and give NDF CFDs a try click here.