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Customers or End-Users in Derivatives Markets

Customers in derivatives markets trade derivatives to hedge risks or speculate but do not intend to immediately reverse transactions for profits. They are not market makers but some active participants like pension funds and hedge funds provide liquidity. Other customers likely include hedge funds who use derivatives for various reasons and high net-wealth individuals with market access. Hedge funds are believed to play a significant role in Brazil's over-the-counter derivatives markets through strategies like carry-trades to capture interest rate differences.

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23 views

Customers or End-Users in Derivatives Markets

Customers in derivatives markets trade derivatives to hedge risks or speculate but do not intend to immediately reverse transactions for profits. They are not market makers but some active participants like pension funds and hedge funds provide liquidity. Other customers likely include hedge funds who use derivatives for various reasons and high net-wealth individuals with market access. Hedge funds are believed to play a significant role in Brazil's over-the-counter derivatives markets through strategies like carry-trades to capture interest rate differences.

Uploaded by

rdixit2
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CUSTOMERS OR END-USERS IN DERIVATIVES MARKETS

Customers, who are also known as end-users, are those trading derivatives for the purpose of hedging, or speculating, but not with the expectation of immediately reversing the transaction to capture the bid-ask spread in the market. They are not market makers, even though some active participants such as pension funds and hedge funds provide a great deal of liquidity to the markets. Other customers, although not identified, include hedge funds who use derivatives markets for a variety of reasons. There are also likely to be some high net-wealth individuals who have access to the markets. Hedge funds are believed to play a significant role in Brazils OTC derivatives markets, however the limited transparency means that the particulars are unknown. As discussed below, they are believed to be engaged in investment strategies such as the carry-trade for capturing the interest rate differential between the real and other currencies.

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