Is it possible to trade a derivative product priced on the volume traded of some underlying security or index?

Does such a derivative exist on any exchange traded markets? Or anywhere?

  • 5
    $\begingroup$ I've never heard of a volume-linked instrument, but since volume and volatility are often related, you might be able to approximate what you want via a volatility-linked instrument. $\endgroup$ – chrisaycock Nov 21 '13 at 14:56
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    $\begingroup$ I don't think there is one. First, it might be hard to define volume, especially for vehicles that can be traded outside of exchanges (e.g. equities). Another point is that you can directly influence the price by buying the underlying, and if you would like to hedge against it you even increase price by increasing volume. A proxy (but more long-term) can be shares of stock exchanges that profit when order volume goes up. $\endgroup$ – chriscross Nov 21 '13 at 17:48
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    $\begingroup$ You can express views on volume indirectly through VWAP order types. You can pay 10-15 pips for a guaranteed vwap price and look to beat that through a hedge of your own if you believe you have a superior view on price levels and where volume trades. But this is more an expression of trading intraday volume. $\endgroup$ – Matthias Wolf Nov 21 '13 at 23:01
  • $\begingroup$ Out of curiosity, what are the potential use cases for such a product? $\endgroup$ – Atlas Nov 22 '13 at 8:40
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    $\begingroup$ Or you could scrape tweets to speculate on market interest without having to gauge the direction of the sentiment... $\endgroup$ – quant Nov 22 '13 at 9:04

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