Volswap liquidity in FX

frolloos · Post by **frolloos** » Wed Jun 10, 2020 1:56 pm

If they are still traded at all, as before (several years ago) volswaps are probably more liquid in FX space (eg usdeur) compared to equity (spx), is that right?

I vaguely remember that I was able to trade around 250K per clip of volswap vega on SPX several years ago (2015-2017). Is that still the case? What about FX, what kind of notionals are we speaking about then?

mtsm · Post by **mtsm** » Wed Jun 10, 2020 3:38 pm

I would say somewhat liquid in prominent currency pairs and of course you get what you want in a client trade you just have to pay for it.

I cannot really help you with an indication of notionals, maybe someone more in the sell-side know can help? Did you check SDR? I can't say if this is being reported, had a quick look and am seeing entries for "Complex Exotic" in there. Have a look.

But there is some liquidity, because when possible it is desirable to bring in vol products into the calibration of LSV models and some dealers appear to be doing that and it's mostly vol swaps and FVAs I believe. Variance swaps are not common in FX.

Variance swaps are just scary in general, probably ok for indexes which is where they trade, otherwise always capped in my understanding.

Its Grisha · Post by **Its Grisha** » Wed Jun 10, 2020 3:46 pm

Have a buddy on sell side who focuses on FX vol, they had a huge Q1 2020. Definitely prices a lot of vol swaps on major pairs, I can try to find out what kind of notional they typically see. Seems the market is alive and well though with multistrat funds playing the game.

edit: It appears typical is under 100k vega, mostly 20-40k clips. Color right now is number of requests down substantially.

frolloos · Post by **frolloos** » Wed Jun 10, 2020 4:11 pm

Thanks guys, that's helpful.

@mtsm, yeah you're right, as a client you pay for what you want. Probably the 250K per clip on SPX several yrs back was the max, and likely buy-side overpaying. Will take a look at SDR as well. Complex exotic sounds about right ${L_SMILIES_VERY_HAPPY}$

@Its Grisha, wow 20K-40K per clip at the moment doesn't sound like too much indeed, especially given the depth of the major FX pairs. Perhaps all the vol / vol-of-vol funds have positioned themselves by now.

tbretagn · Post by **tbretagn** » Wed Jun 10, 2020 6:38 pm

Talking to my buddy in US bank FX exo givne the amount of time he talks to me about worst of volswaps being traded by funky players there is definitely stuff going on

Strange · Post by **Strange** » Thu Jun 11, 2020 12:35 am

In SPX, all light exo is pretty much dead. A big part of that overall flow was ART and since those guys have been carried out in March, that wave took stuff like volswaps and barriers with it. While a typical vol swap clip before March was in the hundreds vega notional and probably 25bps wide, now it's closer to 50k and probably 50bps wide. People were reluctant to show var/vol even in 100k today (and they knew it was an indication, too).

I will ask my FX coverage for some vol swaps tomorrow.

Strange · Post by **Strange** » Sat Jun 13, 2020 4:08 pm

FWIW I quoted 4 banks and got reasonably tight market (12bps wide inside) for 6m vol swap on cable, 100k up. Something like that in the SPX would likely be 25-30bps, but vol is higher tool.

frolloos · Post by **frolloos** » Sun Jun 14, 2020 12:06 pm

Cheers, Strange. Liquidity is not too bad actually. Useful to know.