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Overseas derivatives

Brokerage firms enjoy rising bets on global derivatives

Apr 14, 2021 (Gmt+09:00)

Kiwoom Securities' advertising board in Times Square, New York, on Mar. 29 
Kiwoom Securities' advertising board in Times Square, New York, on Mar. 29 

South Korean brokerage houses enjoyed a bumper year in 2020 with a record fee income from global derivatives trading, driven by retail investors' venture into overseas futures and options markets.

Their increased risk tolerance was met with brokerage firms' aggressive marketing, including fee cuts, pulling the transaction value of global derivatives products by domestic investors almost 50% higher in 2020 from a year earlier.

Kiwoom Securities Co., the country's most popular online stock trading platform, was the biggest beneficiary. It posted a 171% surge in fee incomes to 126.3 billion won arising from trading of overseas derivatives products. That figure far outweighed the 74.4 billion won it earned in fees from overseas stock trading in the same year.   

In total, overseas derivatives trades generated a combined 339.2 billion won ($302 million) in fee incomes last year for the country's 12 brokerage companies that deal with global derivatives, up 64.8% from a year earlier, according to the Korea Financial Investment Association on Apr. 13.

Korean brokerage firms' fee incomes from overseas derivatives trading:

Company At end-2019 At end-2020  Yr-on-yr growth
Kiwoom Securities 46.6 billion won 126.3 billion won 171%
Kyobo Securities 54.7 billion won 72 billion won 31.6%
Korea Investment & Securities 24.8 billion won 32.4 billion won 30.6%
Ebest Investment & Securities 17.6 billion won 28.5 billion won 61.9%
Hana Financial Investment 17 billion won 23.5 billion won 38.2%
Source: Korea Financial Investment Association

Last year, the transaction value of domestic investors' overseas derivatives swelled by 45.6% to 7.8 trillion won from a year earlier. The retail frenzy about overseas derivatives showed no signs of fizzling out. In the first three months of the year, the transaction value stood at 2.4 trillion won, almost one-third of the 2020  total. 

Overseas derivatives products include futures and options based on indices registered with global exchanges, or commodity or energy futures. Futures trading takes up the majority of the derivatives investments, given their higher trade value per contract than other derivatives.

The high-frequency trading of derivatives and their high fee rates compared to spot market products have made it a lucrative source of brokerage revenue.

"The 2020 results were the consequence of our aggressive marketing when volatility in global derivatives markets went up sharply early last year," said a Kiwoom Securities source.

Kiwoom, which means nurturing in Korean, contributed to the derivatives investment boom by cutting the minimum deposit required for overseas derivatives trade. Last month, it hung an advertising placard in Times Square, New York, promoting it as a trading platform for the US-listed stocks.

"Micro Nasdaq 100" was Kiwoom's most popular derivatives product for retail investors last year, accounting for 38% of trading executed on its platform. "Crude oil futures," "Mini Nasdaq" and "Micro Gold" came next with a share of 9%, 9% and 8%, respectively.

But the surge in overseas derivatives trade prompted concerns from some asset managers.

"South Korea is the only country in the world where retail investors' trading of overseas derivatives, which are a hedging tool for institutional investors, reached such a high level," said an asset management head in Seoul.

"Brokerage companies' aggressive marketing seems like they are encouraging retail investors to bet on derivatives. It means they will become a gambling manager," he added.

A domestic brokerage company executive said his company has refrained from marketing overseas derivatives products on concerns they could have negative consequences going forward. 

Write to Yun-Sang Ko at

Yeonhee Kim edited this article.

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