FX forward, futures contracts surge amid naira devaluation

The demand for foreign exchange forward and futures contracts surged this week as the naira saw a significant decline against the dollar, according to data from FMDQ, a securities exchange.

The naira was devalued on Tuesday as the Central Bank of Nigeria collapsed all segments in the FX market into the Investors’ & Exporters’ Window in a bid to achieve exchange rate convergence.

Bola Tinubu, who took the helm of Africa’s biggest economy on May 29, said in his manifesto ahead of the Feb. 25 election that his government would “review and better optimise the exchange rate regime” to achieve “a stronger, more stable naira”.

In the FX derivatives market, the FX forwards and FX futures turnover jumped by 1,133.86 percent ($92.75 million) and 58.42 percent ($166.66 million) this week. 

The FMDQ said $451.94 million worth of FX futures contracts were traded across 180 deals, representing an increase of 58.42 percent when compared to the $285.28 million contracts traded in 40 deals last week.

“For the week-ended June 16, 2023, the average Nigerian Autonomous Foreign Exchange Fixing rate was $/₦606.86, compared to $/₦467.91 recorded in the week-ended June 9, 2023, representing a depreciation of the naira against the United States dollar by 22.90 percent ($/₦138.95), following regulatory pronouncements by the Central Bank of Nigeria on June 14, 2023, impacting the FX market,” it said on Saturday.

In the FX spot and derivatives markets, the total turnover was $1.19 billion, up 42.36 percent from $840.68 million last week. 

The increase in total turnover was jointly driven by the 17.67 percent ($96.70 million) and 88.40 percent ($259.41 million) increases in FX spot and FX derivatives turnover, respectively, according to the exchange.

In the FX spot market, the total value of transactions was $643.92 million, up from $547.22 million last week, it said.