IHOFX | Bond Market

Bond Market

Bond Derivatives Market

The Bond Derivatives Market provides traders with the ability to perform on-screen or off-screen trading. IHOFX Clearing ranges and covers all Bond Derivative transactions, regardless of the process of execution. This reduces the possibility of a counterparty default. The IHOFX compliance team monitors Bond Derivative trades in real time to ensure that they are priced fairly and that they comply with the exchange’s regulations.

The IHOFX’s Bond Derivatives Market enables trading of the following Bond Derivatives:

  • Bond Futures
  • Bond Options
  • Bond Index Futures

Bond Futures

A Bond Future is a contract that requires the contract issuer to purchase or sell a Bond at a fixed price on a certain date. The holder of a Bond Future is obligated to purchase the underlying Bond at the agreed-upon price until the future expires. On the expiration of a Bond Future, the seller is required to supply the underlying bond at the negotiated price. The IHOFX offers Bond Futures Contracts on the underlying government and corporate bonds.


Who are the Bond Futures Traders?

  • Bond futures are used by hedgers to secure their portfolio from negative interest rate fluctuations. Hedgers have a direct interest in the underlying Spot Bonds, and they use Futures to preserve their value.
  • Arbitrageurs benefit from price differences between related goods in different markets, such as the spread between Spot Bonds and Futures.
  • Bond Futures are used by investors to maximize the performance of their portfolio on the long run.
  • Bond Futures are used by speculators who expect to benefit from short-term market fluctuations.


Characteristics of Trading Bond Futures:

  • It allows you to achieve equivalent interest rate exposure to Spot Bonds at a fraction of the cost. If the future is held until expiry, you cannot pay the principal or hold the actual Bond.
  • May be used to secure your portfolio from negative interest rate fluctuations or to improve a portfolio's long-term performance.
  • Bond Futures are standardized contracts traded on regulated exchanges and this reduces all parties' exposure to risk and improves liquidity in the secondary trading market, making Bond Futures simple to buy and sell.
  • It enables investors to profit from market fluctuations in Spot Bond markets by anticipating the rise or the fall of the prices.


Bond Options

Bond Options are Derivative Contracts that offer holders the right, but not the obligation, to purchase or sell a Bond Future Contract at a set price on a certain date in the future. Investors that purchase Call Options have the right to buy the underlying Bond Future. They have the right to sell it if they buy a Put Option. Bond Options are cash settled and accessible through IHOFX Derivatives Department. Nevertheless, if Bond Options are kept until maturity, the Bond will be physically delivered in terms of the underlying Future.


Who are the Bond Options Traders?

Bond Options are traded by both private and institutional customers looking for a low-cost way to invest in bonds. Bond Options may be used by hedgers to protect a current bond portfolio from negative interest rate fluctuations. They're used by arbitrageurs to benefit from price differences between comparable products in different markets. Some investors use Bond Options to enhance the overall performance of a portfolio.


Characteristics of Trading Bond Options:

  • It offers private investors access to South Korean’s Bond Market.
  • There is no obligation to purchase or sell the underlying Bond Future.
  • Bond options may be used to secure investors' portfolio from negative interest rate fluctuations or to improve a portfolio's long-term profitability.
  • It helps investors to profit from market fluctuations in Spot Bond rates as they can estimate the increase or decrease of prices.
  • It eliminates counterparty risk by allowing traders to trade standardized contracts on a regulated market.


Bond Index Futures

Bond Index Futures are derivatives instruments that follow the IHOFX's Bond Indices and provide investors with access to an underlying portfolio of Government Bonds traded on the exchange. Bond Index Futures are cash settled and can be accessed through IHOFX Interest Rate members.


Who are the Bond Index Futures Traders?

Bond Index Futures are traded by both international and local investors who choose to diversify their portfolios and gain exposure to the local Bond Market. Depending on their preferences, investors can choose both short- and long-term investments.


Characteristics of Trading Bond Index Futures:

  • The probability of default is reduced when the exposure is distributed over a number of Bonds.
  • The level of exposure is geared.
  • The IHOFX guarantees settlement.