Why Did the Won-Dollar Futures Market Surge 143% in Singapore? [Global Money X-File]

Summary

· SGX won-dollar futures trading up 143%

· Global volatility and rising speculative demand as reasons

· Concerns about Korean won’s rising stature and greater capital volatility

This year, the won-dollar futures market at the Singapore Exchange (SGX) has shown rapid growth. Analysts attribute this to heightened global financial market volatility and related structural changes. There are also opinions that the Korean won’s global standing is rising.

Trading surges more than 140%

According to SGX on the 21st, the average daily trading volume of won-dollar futures at SGX in May soared 143% year-on-year to 38,294 contracts (worth about $685 million). On a monthly basis, this marks an all-time high.

SGX explained, "During the same period, exceptional volatility in the New Taiwan Dollar spread to other emerging Asian currencies like the Korean won, greatly stimulating speculative and hedging demand."

The increase in won-dollar futures trading is not a temporary phenomenon. Since the second half of last year, the won futures market has been growing rapidly. In October last year, daily average trading volume of won-dollar futures at SGX was up 150% from the previous year, reaching a record high at that time.

Overall FX futures trading at SGX is also rising. In June this year, it increased by 50% year-on-year, totaling 6.7 million contracts for the month. Demand for futures is growing substantially across Asian currencies, not just the won.

It is mostly foreign banks and global investment institutions that are known to trade won-dollar futures. Singapore is the world’s third largest foreign exchange trading hub. In Asia, it serves as a currency trading center.

Speculative bets also on the rise

In May, the sharp jump in won futures was also driven by speculative bets from hedge funds. When the New Taiwan Dollar soared in a short period, some hedge funds saw the Korean won as "next" and increased derivative bets on appreciation.

SGX stated, "A large influx of new participants entered the SGX won mini futures market, greatly increasing liquidity." The mini futures market is a sub-market where derivative products with smaller contract sizes are traded compared to traditional futures contracts. These new participants appear to include small global funds and family offices.

Currency hedging trades by pension funds and other institutional investors are also increasing. Overseas pension funds and funds investing in Korean stocks or bonds build positions in won futures or NDFs (non-deliverable forwards) to manage won currency risk. Recently, cases of using SGX futures for this purpose have grown.

Previously, most such trades involved banks within Korea. However, due to Singapore’s deep liquidity and longer trading hours, the share of offshore hedging using the won has been rising.

Hedging and demand for the won by global corporations is also on the rise. Multinational companies doing business or trading in Korea maintain preemptive hedging positions with NDFs or futures to prepare for exchange rate volatility. Such demand is contributing to the growth of the SGX won futures market.

Triggered in the United States

There are complex reasons behind the surge in SGX won futures trading volumes. Shifts in global currency policies and restructuring of market structures in recent years can be cited. The Federal Reserve’s rapid monetary tightening and rate hike cycle that began in the early 2020s heightened global FX market volatility and led to structural changes.

In 2022-2023, when the Fed sharply raised the policy rate from near 0% to the 5% range, investment capital flocked to U.S. dollars, leading to dollar strength worldwide. This caused emerging market currencies to weaken sharply.

The Korean won was no exception. In 2022, the won-dollar rate briefly broke above 1,440 won per dollar, the weakest level since the financial crisis.

In early 2022, the won-dollar exchange rate was around 1,190 won, but surging to 1,440 won by September of the same year. It plunged to the 1,230 won level in early 2023, then rebounded to the high 1,300 won range between 2024 and 2025, going through a rollercoaster ride.

As FX volatility intensified, the need for investors to manage currency risk grew rapidly and demand for hedging tools like won futures expanded structurally.

It’s also analyzed that the first Trump Administration contributed. From 2017-2020, U.S. President Donald Trump expressed a preference for a "weaker dollar" to strengthen export competitiveness.

However, policies such as corporate tax cuts, capital repatriation incentives, and calls for higher rates drove more funds into the U.S., strengthening the dollar. This exacerbated global trade imbalances and led to emerging currency weakness, with the won under downwards pressure as well.

Back then, global FX disputes triggered by the Trump Administration were also a noteworthy background. In 2019, the U.S. Treasury designated China as a currency manipulator amidst the intensifying U.S.-China trade dispute, pushing each country to defend or depreciate their own currencies.

Soaring currency hedge demand

Rising domestic demand for currency hedging is another reason for the jump in SGX trading volume. According to the Bank of Korea, the average monthly volume of foreign investors’ domestic securities holdings hit 223 trillion won last year, higher than the previous year. This is a key factor behind increased hedging by foreigners against won weakness.

The Bank of Korea also stated that, last year, daily average transactions between domestic FX banks and non-residents were $24.97 billion, up 11.0% year-on-year. A large share of this is estimated to be offshore hedging, such as via NDFs.

Foreign investors, when investing in Korean stocks or bonds, must avoid won exchange rate fluctuations. Usually they hedge currency risk through forward or swap contracts with Korean banks but, due to domestic financial regulations and time constraints, parallel use of offshore NDF markets is common.

The explosive growth of the SGX won futures market is seen by some as a sign of changing structure in the global FX market. Increasing futures trading in the won means the currency is rising as a global investment asset.

In the past, only the yen and yuan carried significant global FX market shares, with the won remaining peripheral. The won is still somewhat restricted offshore, but it is gaining international tradability via the futures market.

The won often acts as an "emerging market economic/risk indicator" as the Korean economy is highly sensitive to external conditions and industrial manufacturing. Its exchange rate responds sensitively to global economic cycles and risk appetite changes.

International investors have used won assets for global portfolio hedging, and added liquidity in won futures has boosted their effectiveness. Won futures pricing now reflects more than just factors within Korea.

The won is now treated as a benchmark for expectations regarding U.S. monetary policy, China’s economic conditions, and broader East Asian and global risks.

Has the won’s status really risen?

It also directly impacts the Korean economy and financial markets. Rising derivatives trading in the won, such as futures, means foreigners can enter and exit Korean won assets more freely.

Foreigners, having acquired hedging options for the won, now have greater conditions to actively invest in Korean stocks and bonds—a positive side.

On the other hand, the risk of larger and faster cross-border capital flows is now higher. Easier hedging means easier entry, but also potentially quicker exits.

If global risk aversion rises, foreigners may sell spot stocks or bonds and simultaneously take short won positions in the futures market to offset losses.

On its LinkedIn page on the 14th, SGX said, "The won-dollar mini futures at SGX have become virtually the only platform for forming a won price during European morning hours. New market participants are flowing in rapidly, with explosive growth in liquidity."

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Reporter Juwan Kim kjwan@hankyung.com