Skip to content
All library documents

Trading Emerging-Market Interest Rates Through OTC Swaps and FRAs

Article Quant Q&A · Author: Alvaro
Read the original

Summary

The document discusses ways to obtain interest-rate exposure in currencies outside the G10. Its answer recommends interest-rate swaps for intermediate and longer maturities and forward rate agreements, including non-deliverable versions where relevant, for shorter maturities. It notes that access and liquidity vary by currency: some markets can be accessed through request-for-quote platforms, while others are mainly voice-traded.

The responses describe institutional access as a key constraint. A prime broker and execution give-up arrangements may help obtain liquidity, while trading OTC products generally requires relationships and agreements with dealers. Listed currency futures are mentioned as an alternative, but the questioner already regards their liquidity as limited; exchange-traded funds or a broker-provided swap are also suggested. These are broad market-access observations, not a currency-by-currency liquidity study or a detailed comparison of costs and risks. Retail access may be difficult, and the recommendations depend on counterparties, infrastructure, and the specific market.

Key ideas

  • Swaps are suggested for longer rate exposure, while FRAs suit the short end.
  • Non-deliverable agreements may be used where local currency markets require them.
  • Liquidity and execution channels differ across emerging-market currencies.
  • Prime brokerage and dealer relationships can be important for OTC access.
  • Listed futures, ETFs, and broker-written swaps are mentioned as alternatives, with access and liquidity limitations.

Tags

Fixed incomeForexExecutionMarket microstructure
Full text
# how to trade interest rates outside G10


# how to trade interest rates outside G10












G10 currencies markets have active FRA markets and apart from NOK, SEK and NZD one can also speculate on interest rates through exchange-traded futures. What's the best liquid way to speculate on interest rates on 3mo to 3 or 5 year horizon in currencies like BRL (for someone without access to BMF Bovespa), MXN, CLP, COP, ZAR, PHP, MYR, IDR, PLN, HUF, TRY, CZK, RUB? Do market speculants usually trade FX/NDF swaps or prefer other OTC products for such exposure in any of the currencies?

## Answer by Chris Taylor (score 1)

https://quant.stackexchange.com/a/43266

Interest rate swaps for 2-10Y and forward rate agreements for the short end (or the non-deliverable variant, where applicable) are the best way. Some currencies are available via RFQ on aggregators like TradeWeb (e.g. ZAR, PLN, HUF, CZK) but others are very much voice markets. You’ll need a prime broker, and give-up agreements with executing brokers to get the best liquidity.

## Answer by PlantFox (score 0)

https://quant.stackexchange.com/a/42849

You could trade the ICE/CME futures in FX, but like you said the liquidity is not very good. Outside of having a relationship with an I-Bank (read need ISDA or Prime Brokerage), getting access to the OTC market is practically impossible. You could try and find ETFs which hold the underlying you're interested in. You could also try and find a broker who will write you these swaps, but if you are a retail trader, this will be tough.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.