2nd July 2021 - 6 min read
In general, the importance of investing cannot be overemphasised, especially in preparation for long-term financial goals. Some popular reasons to start investing are to ward off inflation especially with the rising cost of living, to prepare for retirement, and, no doubt, to enjoy potentially higher investment returns.
However, when it comes to investing, there are many types of investments to consider. From low-risk, moderate, to high-risk investments, one should carefully consider their investment choices according to their risk appetite. Fixed Deposits (FD), ASNB, and properties are examples of low-risk investments, while moderate to higher-risk investments may include stocks, bonds, ETFs, and equities. Nonetheless, these high-risk investments may yield potentially higher returns for investors, depending on their risk tolerance.
Futures trading serves as an investment tool that links the potential value of certain assets (such as stocks, bonds, metals, etc.) to a contract mutually agreed by both the seller and the buyer. Futures provide investors with leverage in trading these assets at a lower capital outlay and also act as a “risk management tool” for investors.
So, what do futures look like for you as an investor? Let’s take an in-depth look at what futures is and why you should consider trading in them.
A futures contract is a standardised contract between two parties where both parties agree to buy and sell a particular asset in a specific quantity, at a predetermined price, and at a specified date in the future. An investor can be either a buyer (expect the market to be bullish) or a seller (expect the market to be bearish) without owning the underlying asset. Futures contracts can be traded purely for profit, as long as the trade is closed before expiration.
What assets can you trade with futures? They can be diversified from stocks, bonds, and currencies, but the most common assets are raw materials such as wheat or palm oil, or products that are essential for mass consumption.
The typical type of futures investor is a speculator who tries to make a profit by either buying a futures contract if he/she expects a rise in price or selling a futures contract if he/she expects a fall in price without owning the underlying asset. The person will then potentially gain profit if the market price is in favourable direction of his/her price expectation.
Besides, futures contracts can be used as a risk management tool. Producers of a commodity or financial institutions will trade futures to protect themselves from future price fluctuation in relevant products. For example, a palm oil producer can sell a futures contract to hedge against the declining price of palm oil in the future. In the circumstances of the palm oil price drop, the palm oil producer will make a loss in the palm oil cash market but a gain in the futures market.
Futures trading takes place on regulated exchanges such as Bursa Malaysia Derivatives and Bursa Malaysia Derivatives Clearing, supported by the exchange’s high level of liquidity.
Futures trading is a leveraged trading tool that enables investors to trade higher values products with a comparatively smaller amount of capital outlay. Therefore, a small movement in the market can translate into a bigger movement in the trading portfolio.
Besides, as mentioned above, investors can initiate a buy position if the investor expects the price to rise, or initiate a sell position if the investor expects the price to drop. The bi-directional trading enables the investors to capitalise on opportunities during an uptrend or a downtrend market. Moreover, it can be used as a hedging tool to minimise losses in the underlying products.
Lastly, futures trading requires a lower transaction cost compared to others trading tools as it is calculated based on a fixed fee per lot, per side (buyer and seller) instead of a certain percentage taken out of the total investment.
If you would like to diversify your investment portfolio with other trading tools, futures may be the one to consider. Phillip Futures Sdn Bhd has over 30 years of market experience and is the first futures broker in Malaysia to allow investors to register their accounts online.
Phillip Futures Sdn Bhd is under the supervision of Securities Commission, a Trading Participant of Bursa Malaysia Derivatives Berhad, and a Clearing Participants of Bursa Malaysia Derivatives Clearing Berhad.
With Phillip Futures, investors can get access to up to 90 varieties of products, with regular to micro-sized contracts on metal, agricultural, index, commodity, and energy futures. And for a limited time only, Phillip Futures Sdn Bhd is offering all investors commission as low as USD2* when they trade US products. You can sign up for an account online here.
Besides that, investors will also get to enjoy exclusive client-only benefits with Phillip Futures such as free access to seminars, webinars, and events, subscription to the latest market updates from their team of expert strategies and analysts, and most importantly, exclusive client-only promotions.
Free one-to-one coaching sessions and 24 hours dealing support are also available to assist investors who would like to learn more about futures trading. For more information, visit www.phillipfutures.com.my.
*Terms and conditions apply.
This advertisement does not constitute any buying or selling recommendation, offer or solicitation to buy or sell any investment product. It does not have any regard to your specific investment objectives, financial situation, or particular needs. Investments are subject to investment risks. The risk in futures trading can be substantial and you could lose your Initial funds. You may wish to seek advice from a registered representative, pursuant to a separate engagement, and to read the governing Terms and Conditions and the risk disclosure statement carefully before making any decision whether or not to invest in such products. The Securities Commission Malaysia has not reviewed this marketing or promotional material and takes no responsibilities for the content of this promotional or marketing material and expressly disclaims all liability, however rising from this marketing/ promotional material.
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