Futures trading in Singapore has a few unique characteristics compared to most other countries in the world.
These characteristics include
- A small number of futures contracts available – ranging from agricultural goods through energy to metals and currency pairs
- The SICOM market is not open all the time- it is only accessible throughout the global business day when the US exchanges are open for trading (10 pm – 3 am Singapore time)
- There tends to be a lack of liquidity on some products, especially at times when nobody seems interested in trading them
- Futures markets exist which trade almost 24/7- these can provide an ideal solution for many traders who want low-cost exposure to particular stock indices or commodities.
The futures contracts available in Singapore tend to be global denominated (USD, EUR etc.), which means there is no need to worry about FX conversions like you might when dealing with stock CFDs or forex. Also, the requirement for a minimum margin on some of these products can make them very cheap from a risk perspective. These features make it possible to try out several different trading strategies and see which ones work best for you.
Let’s look at some of these:
Scalping
The scalping approach tries to capture profits over short periods by making split-second decisions whether to enter into trades and exit within minutes or even seconds if necessary. The focus here is on keeping commissions low whilst still making a decent return.
Day trading
This is where you enter and exit positions during the same day, so there is no overnight risk. The challenge here is to identify good entry points. It can be strict with stock indices given the lack of hours available for trading in Singapore (there are only around 12 hours per day when SICOM futures on US indices like the NDX or SP500 are live).
Swing trading
Here, we look to hold positions for up to a few days and hope that they will gain sufficient momentum within this period to make it worthwhile. An essential requirement for success with swing trading is identifying stocks that tend to move powerfully in particular directions after certain events like results announcements or rumours of takeovers.
Position trading
This is where traders hold positions for weeks or even months, and they aim to ride out any short term volatility in the hope that the longer-term trend (up or down) will continue. The risk with this approach is that if prices turn against you, you have to be prepared to endure large drawdowns before entering at breakeven again, so it requires a strong stomach for taking pain!
Liquidity
The futures markets open 24 hours per day can provide exposure to global stock indices or commodities without exposure to foreign exchange risks. However, they don’t tend to be as liquid as some other products available elsewhere, so your order sizes need to be enough that slippage doesn’t eat into your profits too much.
The more liquid markets like the Singapore FTSE or S&P CNX Nifty have tight spreads. Still, they are only accessible during local trading hours, making it impossible to attempt global coverage using these instruments.
Although futures may seem complicated at first glance, they provide an ideal environment for learning how financial markets work because there is less chance of being caught in a stampede by other traders!
Risk reversal strategies
You might also want to try out risk reversal strategies with futures which can potentially generate very high returns if volatility increases whilst you are holding them. You will find that most professional money managers don’t even consider this approach as there’s no way they could have their salaries if they were able to turn it into an income-generating product!
For more on futures trading strategies in Singapore, please check out Saxo market.
