Singapore is a global financial centre and is home to many futures traders. Futures trading offers investors several benefits, including trading contracts representing an underlying asset, such as stocks, bonds, or commodities.
In this article, we will discuss why futures trading is beneficial for Singaporean investors. For more information, you can check out Saxo capital markets.
Advantages of Futures Trading for Investors in Singapore
What is futures trading?
Futures trading is an agreement to buy or sell an asset at a set price at a future date. Futures contracts are standardised to be traded on futures exchanges, with the terms of each contract defining the quantity and quality of the underlying asset, the delivery date, and the price.
The asset can be anything from commodities like corn or oil to financial instruments like government bonds or currency pairs. To trade futures, investors must first open an account with a broker that offers access to a futures exchange.
Once the account is funded, traders can place orders to buy or sell contracts through the broker’s trading platform. When the contract expires, the trader must either take delivery of the underlying asset or settle their position by buying or selling an offsetting contract.
Futures trading can be a speculative activity, as it allows investors to bet on the direction of future prices; traders can also use it to hedge against risk. For example, a company that uses corn in its manufacturing process could purchase corn futures to ensure a stable supply and price for its raw material.
The benefits of futures trading for investors in Singapore
Futures trading refers to buying and selling contracts for the future delivery of a commodity or security. Futures contracts are typically traded on exchanges, allowing investors to hedge against price movements in the underlying asset.
Futures trading can be a valuable tool for managing risk and seeking returns in Singapore’s volatile economic environment.
How to get started in futures trading
Futures trading can be a complex and risky endeavour, but it can also be a lucrative way to invest in the market.
If you’re interested in getting started in futures trading, there are a few things you need to know:
1. You’ll need to choose a broker specialising in futures trading. They will provide the tools and resources you need to make informed trades.
2. You’ll need to become familiar with the different contracts traded on the futures market. These include contracts for commodities like oil and gold, as well as contracts for financial instruments like stock indices.
3. You’ll need to develop a trading strategy that fits your risk tolerance and investment goals.
With careful planning and execution, futures trading can be a profitable way to participate in the market.
The risks associated with futures trading
Futures trading is an activity that comes with a high degree of risk.
For one, the underlying asset’s price can move in an unexpected direction, causing the value of the futures contract to decline.
In addition, there is also the risk of not being able to find a buyer for the contract when it expires. As a result, futures traders must be aware of the risks involved and take steps to mitigate them. You can do this by using stop-loss orders, which automatically close out a position when it reaches a specific price.
Additionally, traders can use diversification to spread their risk across different assets, industries, and countries. By understanding the risks involved in futures trading and taking steps to mitigate them, traders can help increase their chances of success.
Tips for successful futures trading
Futures trading can be a very lucrative way to invest in the market, but it can also be hazardous. Here are a few essential things to consider when trading futures:
– Have a clear purpose for entering into the contract. Are you looking to speculate on future price movements or hedge against potential losses in another investment?
– Be aware of the risks involved. Futures contracts can be very volatile, and prices can scurry up or down. Make sure you are comfortable with this risk before entering into any contract.
– Have a plan for exiting the contract. Once you have entered into a futures contract, you will be obligated to fulfil that contract. Make sure you have a plan for how you will exit the contract before you enter into it.
The bottom line
While futures trading may be a relatively new investment option for some Singaporean investors, it has proven beneficial in the long run. With careful planning and following the right advice, futures traders can enjoy increased portfolio returns and minimise risks.