Hong Kong’s derivatives market is experiencing an unprecedented surge, driven by heightened stock market swings and increased hedge fund activity, according to a report by Reuters citing trading data from the Hong Kong Stock Exchange.
As of March 2025, the number of outstanding futures and options contracts on the exchange reached 22 million, marking a 70% increase from last year’s record levels in just three months.
Analysts attribute the rise in derivatives trading to: a rally in Chinese technology stocks, particularly Tencent (0700.HK), Alibaba (9988.HK), and Xiaomi (1810.HK); and hedge funds using derivatives for risk management, especially in response to geopolitical tensions and tariff uncertainties.
“The surge in single stock options activity has been significant,” said Jason Lui, Head of APAC Equity and Derivatives Strategy at BNP Paribas. Call and put options have become a preferred strategy for leveraged bets while controlling downside risk.
Hong Kong Exchanges and Clearing has expanded its derivatives offerings, launching weekly options on the Hang Seng TECH Index and 10 individual stocks to meet growing investor demand.
Stock market volatility has been fuelled by China’s AI advancements, particularly the emergence of DeepSeek, a low-cost AI reasoning model, as well as President Xi Jinping’s rare meeting with tech leaders, which boosted investor sentiment.
In addition, the Hang Seng Index has risen 17% year-to-date, with Alibaba and Xiaomi surging 50% each.
Despite the rally, tariff threats from U.S. President Donald Trump continue to pose risks.
Ocean Arete, a Hong Kong-based $1 billion macro hedge fund, has increased its China equity exposure while maintaining hedges for potential volatility.
“One of the primary uncertainties we’re navigating is the US-China relationship and broader geopolitical risks,” said Yuexin Zeng, Head of Investor Relations at Ocean Arete. “Volatility will likely remain elevated for longer.”
Aspoon Capital, which reported 14% returns in the first two months of 2025, has been using China tech index put options to hedge against potential tariff shocks.
“The market may be too complacent about tariff risks,” warned Ryan Yin, Chief Investment Officer at Aspoon Capital.
According to Nick Silver, Head of Prime Services for Asia Pacific at BNP Paribas, derivatives trading has seen strong momentum over the past six months, particularly for China-related assets.
“Investors have had to become much more comfortable with trading in volatile markets,” he said. “Using derivatives remains the most efficient way to navigate uncertainty.”
