Futures Trading in Singapore

Futures contracts are used to hedge against price fluctuations or to speculate on the direction of prices. An investor might use a futures contract to either hedge an existing stock portfolio or speculate on the price direction of a stock market using an index future, such as the S&P 500, in the hope of limiting portfolio losses or betting for a profit.

In futures trading, a future is a standardised investment contract that obligates the buyer to purchase a specific asset, or the seller to sell a specific asset, at a specified future date at a predetermined price for a specified quantity and quality of an underlying asset. Standardisation of the underlying asset, the contract size, the delivery date, and the minimum price increment (also known as the tick size) allows for easy comparison and trading of different futures contracts.

Uses of Futures Trading

Futures contracts are typically used for two main purposes - hedging and speculation.

1. Hedging: Futures contracts can be used by investors to hedge against the risk of price fluctuations in the underlying asset. For example, a farmer may use a futures contract to lock in a future price for their crops, which helps to protect against the risk of a decline in market prices. In this way, futures contracts can provide an efficient and effective form of insurance against potential losses.

2. Speculation: Futures contracts can also be used by investors to speculate on the direction of prices. For example, a trader may believe that the price of a particular commodity will rise in the future, and they may use a futures contract to profit from this anticipated price increase. In this way, futures contracts can provide a way for traders to potentially generate returns on their investments.

Pros and Cons of Trading Futures

Pros

1. Derivative trading: Futures provide an investor with the opportunity to trade underlying assets without owning any of them. For example, a financial settlement on contract maturity means the buyer or seller of a futures contract does not need to take physical delivery, say, of a ton of wheat.

2. Leverage: One of the main benefits of trading futures is the ability to use leverage, which allows traders to access larger amounts of capital than they would be able to on their own. This can potentially enable traders to generate larger returns on their investments.

3. Liquidity: Futures markets are highly liquid, which means that it is typically easy to buy and sell futures contracts without significant price impact. This can provide traders with greater flexibility and the ability to quickly react to changing market conditions.

Cons

1. Risk: One of the main drawbacks of trading futures is the risk of potential losses. Leverage can amplify both potential gains and potential losses, which means that traders can lose more than their initial investment if the market moves against them.

2. Costs: Trading futures also involves various costs, such as brokerage fees and margin requirements. These costs can eat into potential returns, and they should be carefully considered when deciding whether to trade futures. The ability to meet tight margin call deadlines is crucial to one's survival as a futures trader.

3. Complexity: Futures markets can be complex, and traders may need to have a good understanding of market dynamics and the risks involved to trade successfully. This can make futures trading challenging for some traders, particularly those who are new to investing.

Types of Futures Contracts Traded in Singapore

In Singapore, futures trading is regulated by the Monetary Authority of Singapore (MAS), which sets rules and regulations for the trading of futures contracts in the country. Futures contracts are traded on the Singapore Exchange (SGX), which is the main stock exchange in Singapore.

Some of the most common types of futures contracts traded on the SGX include:

1. Commodity futures: These are contracts that are based on underlying physical commodities, such as oil, gold, or agricultural products. These contracts are typically used by investors to hedge against the risk of price fluctuations or to speculate on the direction of prices.

2. Stock index futures: These are contracts that are based on underlying stock market indices, such as the SGX MSCI Singapore Index or the FTSE China A50 Index. These contracts are typically used by investors to hedge against the risk of stock market volatility or to speculate on the direction of stock prices.

Some of the most popular overseas futures contracts include:

1. S&P 500 Index Futures: This is a stock market index that tracks the performance of the 500 largest companies listed on the New York Stock Exchange and the NASDAQ. Based on the S&P 500 Index, with each contract representing a notional value of USD 250, the contracts have a tick size of USD 0.01 and are traded in USD.

2. Brent Crude Oil Futures: This is a grade of crude oil that is used as a global benchmark for oil prices. Based on Brent Crude Oil, with each contract representing 1,000 barrels of oil, the contracts have a tick size of USD 0.01 and are traded in USD.

A Word of Caution

Futures trading in Singapore is a potentially profitable activity that is regulated by MAS. Traders who are interested in futures trading can open an account with a brokerage firm and trade futures contracts on SGX and overseas exchanges. However, it's important for traders to carefully consider the risks and costs involved, and to choose a reputable and supportive brokerage firm. By understanding the market and managing risk carefully, traders can potentially generate returns on their investments through futures trading in Singapore.

Trading Futures on moomoo

If you are interested in trading futures on moomoo, you can simply click on the 'Markets' tab and then click on the 'Futures' section to access a full list of futures that you can trade as seen in the screenshot on the bottom left. You can then click on any of the futures to get more details such as its intraday price movements, price histories, bid and ask prices, as well as a general analysis on that particular futures contract. All of these extra information can then help you to make a more informed investment decision which can then be beneficial to your investment strategy in the long run. You can sign up and download the moomoo app to get the real-time information about the futures market.

Images provided are not current and any securities are shown for illustrative purposes only.