Futures trading is a widespread practice in Hong Kong. The main futures traded include stock indices, commodities and currencies such as the Hang Seng Index (HSI) and US Dollar to Hong Kong Dollar rate. Besides these, some futures allow bets to be placed on the weather, inflation rates, elections, even sporting events abroad.
Types of futures
An essential aspect of trading is deciding which future you want to trade-in. Different futures offer different levels of risk and reward for determining their price movements correctly. We look at some of the significant types of futures available for traders looking to profit from Hong Kong markets:
Commodities are raw materials bought by companies that turn them into finished products that they sell to customers. Commodities cover various metals such as gold, silver and copper to oil, meat, coffee and sugar.
Commodity futures are generally less risky than other types of future because their price tends to move in line with supply and demand, which is not affected by speculation or emotion. This has the effect that there is less volatility in commodity prices than stocks and currencies (Bloomberg).
However, they can still be volatile and fluctuate quickly and dramatically when sudden changes in supply or demand occur. A trader may decide on commodities to reduce risk but still want exposure to market fluctuations.
This type of future allows traders to speculate on the direction of various stock indices such as the Hang Seng index (HSI) or the Hang Seng China Enterprises Index (HSCEI). Stock indices are popular because they are easy to understand and are priced in Hong Kong dollars.
The USD/HKD rate is a common currency traded in Hong Kong. Currency futures allow traders to speculate on the value of currencies against other currencies or perhaps more commonly against the US dollar. Therefore, if you believed that the HKD would strengthen against USD from 7.75 to 7.65 within a specific timeframe, this would be an example of going long on HKD/USD.
Factors to consider when choosing a future to trade
There are many factors to consider when choosing which future to trade in Hong Kong. The most important factors are your goals, risk tolerance, and investment time horizon.
If your goal is to grow your capital over the long term, you should invest in stocks or equity-linked funds. If you are looking for a short-term investment with high potential returns, you should look into trading derivatives such as options or futures. Remember to always consult with a financial advisor to determine which option is best for you.
Your risk tolerance is also an essential factor to consider when choosing a future to trade in Hong Kong. If you are comfortable taking on more risk, you can invest in more volatile assets like stocks or derivatives. However, if you are uncomfortable taking on risks, you should invest in safer assets such as bonds or money market funds.
The time horizon of your investment is another crucial factor to consider. If you are looking for a short-term investment, you should invest in assets with shorter maturity. Conversely, if you are looking for a long-term investment, you should invest in assets with longer maturity.
The best way to trade futures in Hong Kong may be to use a combination of two or three types depending on your trading strategy, investment horizon and risk tolerance. With careful analysis of the market and an understanding of how each type of future works, you can improve your chances of making successful trades and profiting from movements in the futures markets. Consult with a reputable online broker from Saxo Bank to get more specific advice on trading futures in Hong Kong. Start trading in a demo account before investing your own money.