OngFirst is currently running a campaign to encourage more Singapore investors to trade futures. It appears there is only a handful of people interested in this asset class at the moment. Perhaps it is perceived as risky, or too complex, and is keeping investors away. But given how the warrants market has taken off, I can't see any reason why the futures market shouldn't, either.

Disclosure: we are providing editorial and presentation services to the campaign, and so we have an economic interest to see it succeed. But for what it's worth, and at risk of sounding like an advertisement, here is our honest and objective take on what our experience has taught us about futures.

1. All investments are risky – what is important is how to manage that risk, and whether the reward is commensurate.
2. There are strategies to mitigate risk – having a broker you trust to look after your futures contracts is a good idea.
3. Futures losses don't mount up – that's because your account is debited or credited at the end of each trading day, depending on whether the value of your futures contract has gone up or down.
4. Eliminate company risk – buying shares in an oil company is one way to get exposure to the oil price, but it won't matter what the oil price does if the company is managed badly. Futures track commodities directly, minus company risk.
5. Exposure to commodities – there is an Exchange Traded Fund listed on the SGX on commodities, but it gives you exposure to about 20 commodities, not any one in particular. Futures give you exposure to many different types of commodities individually.

This is by no means intended as a recommendation to trade futures. It's up to each individual investor to decide what's right for them. But it's an interesting exercise just reading up on various asset classes beyond what you're used to.

As Christie Loh said in the Today newspaper last week, the Singapore market needs to mature, and finding out what it's all about is part of that.


Mark Laudi

Labels: commodities, Futures, OngFirst