A contract between two parties to buy or sell assets at a specific price on a date in the future are known as a futures contract. Futures contracts are often used to hedge risk or speculate on the movement of prices.

How do futures trading strategies work?

There are many different futures trading strategies, but most strategies involve buying or selling contracts when the price is expected to rise or fall. For example, a trader might buy a contract when they expect the underlying asset’s price to go up and sell a contract when they expect the price to go down.

Why trade futures in Hong Kong?

The Hong Kong Futures Exchange (HKFE) is the second-largest futures exchange in Asia and the sixth-largest globally. The HKFE offers a wide range of products, including equity indexes, interest rates, currencies, and commodities.

Why trade futures?

There are many reasons why traders might choose to trade futures contracts. Some of the benefits of trading futures include:

Hedging risk

Traders can use futures contracts to hedge their risk against adverse price movements in the underlying asset.

Liquidity

The Futures markets are highly liquid, which means there is always someone willing to buy or sell a contract.

Transparency

Futures prices are published so that traders can track the price movements of the contracts.

How do I start trading futures?

Firstly, open a Futures trading account with a broker. There are many different brokers to choose from, so it is essential to compare the features and services offered by each broker.

Once you have opened an account, you’ll need to fund your account with enough money to cover the margin requirement for the contracts that you want to trade. The margin requirement is the amount of money you must deposit in your account to hold a contract.

The final step is to choose a trading strategy and start trading! There are many different strategies to choose from, so it is essential to find one that suits your risk tolerance and investment goals.

What are the risks of trading futures?

Like any investment, there are risks linked to trading futures contracts. The most important thing is to understand the risks involved before starting trading. Some of the risks include:

Price volatility

The prices of futures contracts can be volatile, which means they can quickly move up or down. It can be risky for traders who are not prepared for large price movements.

Liquidity risk

The liquidity of the Futures markets can vary, which means that it may be challenging to find a buyer or seller when you want to exit a position. It can lead to significant losses if you cannot close your position at a favourable price.

Counterparty risk

The other party in a futures contract is known as the counterparty. If the counterparty fails to fulfil its obligations, traders can lose money.

Regulatory risk

The Futures markets are regulated by the Hong Kong Monetary Authority (HKMA). There is always a risk that the regulator may change the rules governing the market, leading to losses for traders.

How can I reduce the risks of trading futures?

There are several things that you can do to reduce the risks of trading futures contracts. Check out Saxo for more information on how to do this.

Educate yourself

It is essential to gain a basic understanding of how futures contracts work before you start trading. It will help you avoid making unnecessary expensive mistakes.

Diversify your portfolio

Traders should never put all their eggs in one basket. Diversifying your portfolio will help reduce the risk of losing money if one of your trades goes wrong.

Use stop losses

A stop-loss order can be placed with your broker to sell a contract if the price falls below a specific level. It can help you protect your profits and limit losses if the market moves against you.

Trade small sizes

Trading small sizes can help reduce your portfolio’s overall risk. It is also essential to set a stop loss for each trade so that you can limit your losses if the trade goes wrong.