Photo: Tiger Brokers Singapore

For many investors, the most common way to invest is to pick the right stock and bet that its price will appreciate.

After all, stock markets have historically outperformed in the long term.

Others, perhaps with a more conservative stance, might prefer to buy bonds so that they can enjoy the recurring interest income from holding these assets.

But by doing so, investors will not enjoy much capital appreciation unlike stocks, unless they buy so-called “junk bonds”, that typically bear high risks.

With potential market volatility arising from the ongoing Covid-19 pandemic, including a resurgence in Singapore, investors can hedge their risks by trading futures contracts.

First, here’s a quick primer: What are futures contracts*? Briefly, a futures contract is an agreement between two parties to buy or sell an asset at a future date at a specific price.

Specifically, one party agrees to buy a particular commodity at a specific price at a later date, while a second party, the so-called “counterparty” agrees to sell the asset purchased at the agreed price and at the agreed date.

These agreements can be applied to most standardised commodities such as oil, gold, agricultural products such as wheat, and soya bean, and, for the investors in this region, palm oil and so on. Futures contracts can also be derived from market indices.

Many futures contracts can be purchased through an exchange.

*Futures contracts are margin products. Trading in futures contracts carry a high degree of risk.

The amount of initial margin required is smaller to the value of the futures contract, hence the transaction is highly ‘leveraged’ or ‘geared’.

Traders could lose their entire investment and that possible losses are not limited to the funds and equity deposited in the account.

According to Eng Thiam Choon, CEO of Tiger Brokers Singapore, investors can hedge their returns in a market downturn by taking a short position in a futures contract.

For example, a gold investor, who is fearful of declining gold prices, may sell the gold futures contract.

If gold prices fall, the gain made from the gold futures contract would offset the loss in value of his gold investment.

Besides hedging, investors can make use of futures contract to reduce their exposure through diversification.

This can be achieved through futures contracts, such as the E-mini Nasdaq-100, of which the underlying are the 100 leading non-financial US large-cap companies traded on the Nasdaq stock exchange.

It is favoured by active investors for a convenient way to place their bets on the future value of the Nasdaq-100 market index.

There’s also the E-mini Dow Jones futures contracts, which gives investors exposure to the future value of the Dow Jones Industrial Average.

The Dow Jones consists of 30 US-based blue-chip companies ranging from 3M to Apple to Microsoft to Walmart.

Given the range of companies that make up these two indices, investing in these two futures contracts can be constituted as a form of diversification, Eng explains.

It also provides a well-balanced exposure to leading corporates from different sectors, he adds.

Furthermore, the contract size and margin required of E-mini index futures contracts are “friendlier” to new traders, who are just starting to trade futures contracts, Eng says.

Now, just like how investors can choose to invest in many different stocks across different markets, there is an equally exciting potpourri of futures contracts to invest in as well.

Besides offering E-mini Nasdaq 100 and E-mini Dow Jones, Tiger Brokers Singapore offers its clients more than 80 futures contracts with underlying assets such as indices, treasury notes, energy, metals, agriculture, currencies and equities.

These futures contracts are traded across several major exchanges over the world, which draws trading interest from both institutional and retail traders alike, thereby dispelling some worries over the liquidity of these products.

Tiger Brokers Singapore’s most popularly traded futures contracts, thus far, are the China A50 Index, which is traded on the Singapore Exchange; the 10-Year Treasury Note, which is traded on the Chicago Board of Trade (CBOT); and E-Micro Gold, which is traded on COMEX.

The brokerage’s other popularly traded futures contracts are the E-mini Crude Oil, which is traded on the New York Mercantile Exchange; Tencent, which is traded on the Hong Kong Exchange and Clearing Market; soybean, which is traded on CBOT; and Euro FX, which is traded on the Chicago Mercantile Exchange.

Just like how Tiger Brokers Singapore has made it more economical for clients to trade shares frequently, the same value proposition applies for those keen to give these products a try.

Why wait any longer? Trade now!

Tiger Brokers Singapore is now offering to clients, who have opened a Tiger account, zero commission for futures trading!

Clients can click on the “monthly” buttons on the campaign page to receive the monthly commission-free trades for eligible futures during the particular month. Terms and conditions apply.

For more information, please visit Tiger Brokers Singapore’s official website.




This article has not been reviewed by the Monetary Authority of Singapore.

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