Futures trading involves buying and selling contracts representing an underlying asset, such as a commodity, security, or currency. Futures contracts are standardised, so you can trade them on exchanges subject to strict rules and regulations.
Traders often use futures trading to speculate on the future price of an asset. For example, a trader might believe that the price of gold will increase in the future and so buy a gold futures contract. The trader can sell the contract for a profit if the gold price increases.
It provides access to global markets
Futures trading provides Singapore traders access to a wide range of global markets, including markets for commodities, currencies, and securities.
It helps to diversify your portfolio
Futures trading can help to diversify your investment portfolio because you are not just limited to investing in the Singapore market. Investing in futures contracts exposes you to various assets and markets.
It allows you to hedge your risks
Futures trading can also be used as a hedging tool, meaning you can use futures contracts to offset any potential losses in your portfolio. For example, if you are worried that the stock market will crash, you could buy a futures contract that would increase in value if the stock market falls.
It offers high liquidity
Futures contracts are highly liquid, meaning they can be easily bought and sold because many traders are trading in futures contracts.
It provides leverage
Futures trading gives traders leverage, which means you can trade with more money than you have in your account. Leverage can be a great advantage, allowing you to make more profits. However, it can also lead to more significant losses, so you must be careful when using it.
It has low transaction costs
Another advantage of futures trading is the low transaction costs because there are no commission or brokerage fees charged on trades.
It offers 24-hour trading
Futures contracts can be traded 24 hours a day, from Sunday evening to Friday night, meaning you can trade whenever you want, even if the markets are closed.
You can short sell
Short selling is when you sell a futures contract and then repurchase it at a lower price, allowing you to profit from falling prices. Short selling is not possible in the stock market, but it is possible in the futures market.
It is regulated
Futures trading is regulated by the Monetary Authority of Singapore (MAS), meaning there are rules to protect investors. For example, MAS requires futures brokers to maintain a certain level of capital.
You can use technical analysis
Technical analysis helps traders predict future prices using past price data. Many traders maintain that they can use technical analysis successfully in the futures market.
You can trade on margin
Margin is how much money you need to put down to open a position. For example, if you want to buy a gold futures contract worth SGD100,000, you might only need to put down SGD10,000 as a margin, allowing you to trade with more money than you have in your account.
How to trade futures in Singapore
Open a brokerage account
The first step to trading futures in Singapore is to open a brokerage account. You will need to provide your details and documents, such as your ID and proof of address.
Deposit money into your account
After opening your account, you will need to deposit money into it. You can do this using a bank transfer or a credit/debit card.
Choose a futures contract
Once you have deposited money into your account, you can choose a futures contract to trade. There are many contracts available, so choose one that suits your needs.
Place an order
After choosing a contract, you will need to place an order. You must specify the price you want to buy or sell the contract.
Monitor your position
Once your order has been placed, you must monitor your position, which means keeping an eye on the market and ensuring that your trade is going as planned.
Close your position
Once you are happy with your trade, you can close your position by selling your contract and pocketing the profits.