Negotiate on a profitable future
With exceptional annual growth in trading volume, the Thailand Futures Exchange (TFEX) is one of the fastest growing futures markets in the region.
The exchange ranked 25th among the world’s largest futures markets in terms of trading volume in 2020, 15 years after the launch of SET50 Index Futures, according to the Futures Industry Association, a global group of market operators. in the long term.
A STORY OF SUCCESS
TFEX, a subsidiary of the Stock Exchange of Thailand (SET), has seen growth every year since its inception and positive returns every year for the past decade.
The main factors supporting the market are a wide range of products, an enabling ecosystem, and the early integration of technology into an e-commerce platform that has proven to be critical for growth, especially during the pandemic.
In international markets, futures markets are generally more mature and active than traditional stock markets, primarily focusing on short-term investments, speculation or hedging.
Futures contracts provide that two parties agree to buy and sell a particular asset at a predetermined price and time, allowing investors to speculate in all market conditions, even in volatility.
However, because investors need to plan in advance when and at what price they will buy or sell assets, the market is more suited to experienced investors with knowledge and a high tolerance for risk.
This need for experience usually means that the number of investors in a futures market is very low. Still, TFEX investors generated higher trading volume and value than the traditional stock market, as they are very sophisticated investors with high negotiating power and valuation, according to the local exchange.
The number of investors in TFEX continued to increase. There were 260,436 trading accounts as of August 31 on TFEX.
The number of investors has grown by an average of 13% per year in recent times. In 2020, investor accounts increased by 21,951, up 16% year on year.
In 2020, 48% of investors in TFEX were Thai investors, 23% were foreigners, and 29% were domestic institutions. Some 45% of the investments were made via the Internet, 29% via direct market access and 26% via marketing staff.
The average transaction volume in the first eight months of 2021 was 533,152 contracts per day, up around 8% from the previous year. Open interest stood at 3,493,698 contracts, up 59% from the end of 2020.
The most active product on TFEX is equity futures, with 49% of the total trading volume, followed by SET50 futures and online gold futures, which respectively contributed 38% and 8%.
RISK OF CHANGE
Online gold and USD futures are high growth commodities with promising returns this year.
According to TFEX, the outstanding volume of online and USD gold futures contracts has grown steadily over the past eight months, with trading volume increasing 24% or 41,500 contracts per day and 9%. or 12,606 contracts per day, respectively, from 2020.
In 2020, TFEX extended the overnight trading session for gold and silver futures to 3 a.m., in line with other global futures markets.
After the extension, the trading activity during the night session increased by 65% as it coincides with the opening of the European and American markets, which are located in the other hemisphere.
The exchange recognizes that some people may be discouraged from investing in global commodities such as gold, silver and other commodities due to the fluctuation of the exchange rate, which is a huge risk factor affecting profits when returns are converted back to baht.
Currency risk is a key factor leading some investors to turn to USD futures, which have seen the volume and value of trade increase dramatically this year.
According to TFEX chief executive Rinjai Chakornpipat, investments in global assets could benefit from the depreciation of the baht this year, as the currency fell from 30 baht to around 33.50 per dollar in August, a depreciation of 12% by report at the start of the year.
Last year, the baht strengthened by 10%, from 33 baht per dollar in April to around 30 baht per dollar at the end of the year, leading some investors to post reduced profits on their investments. , she said.
Ms. Rinjai recommends that investors and importers / exporters consider managing currency risk when investing in global assets, including USD futures, to offset losses when currencies fluctuate.
Each investor can hold a maximum of 10,000 contracts or $ 10 million in futures on TFEX. However, if the buyer is a company obligated to pay or deliver in dollars, the maximum is 50,000 contracts or $ 50 million in futures contracts.
USD futures on TFEX have an average trading volume of around 12,500 contracts per day, which is considered liquid, she said.
If investors wish to accept physical dollars, they can use the Daily Dollar Exchange service to convert their USD futures positions to physical dollars.
The USD futures trading session is currently 9:45 a.m. to 4:55 p.m., which differs from the trading hours for foreign assets in different time zones.
To meet the growing investor demand for USD futures contracts and enable investors to use futures contracts more efficiently, Ms. Rinjai said TFEX plans to extend futures trading hours to 11:55 p.m. ‘by the end of September to cover night trades.
With a longer trading session, USD futures will become an alternative for entrepreneurs who want to manage currency risk outside of commercial bank hours, she said.
In addition, TFEX wants to extend the contract maturity for a new round of online money futures by the end of September, for investors who want longer term investments.
New silver futures will expire within the nearest two quarterly months from launch.
Existing online money futures contracts expire in the nearest quarterly month (March, June, September, December).
Although the exchange does not plan to launch any new products this year or next, it is preparing to upgrade the infrastructure of its trading platform.
TFEX is constantly studying the feasibility of new products to meet the needs of investors, Ms. Rinjai said.
“Overseas futures markets are now exploring Bitcoin futures for trading,” an industry source said on condition of anonymity.
“TFEX also sees this as an opportunity, but digital asset companies are not covered by the Futures Trading Act. TFEX cannot switch to digital assets until the law is changed, which will take a long time. “
Despite the legal roadblock, TFEX offers a wide range of products covering most common choices to meet the needs of investors, Ms. Rinjai said.
As a hedge against volatility, the TFEX and global futures markets are expected to continue to grow in volume and value of short-term trading, she said.