Retail Futures Trading in Asia is on the Rise

At a Glance

  • Retail trading in CME Group markets increased more than 40 percent in Asia last year


2016 was not a year for the faint-hearted. It brought us a series of shocks – of which many are continuing to reverberate throughout this year and beyond.

Those who were hoping for a less eventful 2017 have found that uncertaintycontinues to dominate the markets.  There will be elections in European powerhouses including Germany, which willhave repercussions for the European Union (EU). The United Kingdom is also set to commence the formal Brexit process, which is bringing its own uncertainty to European and global markets.  The effects of the new U.S. administration’s trade plans still remain to be seen.  And, at the same time, as China continues to manage its economic transformation and internationalize its financial markets, among many other challenges, there will be no shortage of uncertainty in Asia..

Last year, investors were quick to recognize the unusually high level of volatility witnessed across markets and asset classes. In Asia, an increasing number of retail investors took to futures, as they attempted to access opportunities as well as to manage the risks associated with their other investments. Last year, CME Group’s average daily volume (ADV) for all trading in Asia Pacific reached a record 630,000 contracts, up 15 percent from a year earlier.

Of course, that is considerably below the sorts of trading volumes seen on futures markets in the U.S., where financial derivatives are already an integral part of the retail investor’s toolkit. Globally, CME Group’s annual ADV reached a record 15.6 million contracts in 2016, including records in interest rates, energy, agricultural commodities, metals, total options and electronic options.  However, the growing popularity of futures among retail investors in Asia is an important trend worth noting.


Trading Around the Clock

In a fashion similar to last year, while the fast changing geopolitical and economic landscape creates risks for institutions to manage, it also has created investment opportunities for active retail traders across the entire asset class spectrum, 24 hours a day.

In fact, retail trading in CME Group markets increased more than 40 percent in Asia last year, with the top three products traded including Crude Oil futures, E-Mini S&P500 futures and Gold futures, respectively.  CME Group global volume during Asian market hours overall also increased by 50 percent.  That is critically important because it means traders can execute their strategies in liquid markets that are also well regulated around the clock – not only when the U.S. is up and trading, but during European and Asian hours as well. The importance of this access was imperative when investors saw opportunities during the Brexit referendum and the U.S. election – the top two retail trading days of 2016.

China is one market where interest in futures is particularly strong. There, futures continue to prove attractive to investors whose investment options are more limited than in other markets. Those keen to diversify beyond the stock market and an over-invested property market have, in reality, few alternatives. The downward pressure on the Renminbi, which is essentially cutting into the purchasing power of a Chinese middle class increasingly inclined to travel and spend abroad, coupled with recent measures by the government to restrict capital outflows, have added to the appeal of futures trading.

It would be restrictive, however, to chalk up the increasing popularity of futures just to a lack of other investment options.

Futures are inherently attractive: the high levels of transparency, liquidity and diversification that these instruments provide help to explain why they are picking up steam among investors keen to diversify away from traditional bond and equity instruments.


Flocking to Futures

The mounting appetite for futures among retail investors also reflects a more hands-on approach among those eager to have a greater say over how they invest their money and hedge their investment risks. Technology has, of course, greatly facilitated that trend, and many have welcomed the opportunity to trade asset classes from the confines of their homes or the convenience of their smartphones.

But there are possibly other factors also at play. Mutual funds remain an option for many investors, but have witnessed heavy outflows in recent years.  Other alternatives, such as hedge funds, typically require high entry tickets and impose long lock-in periods of up to six months. We also have seen those funds impose redemption limits in times of crisis.

Futures, on the other hand, provide access to a whole host of asset classes, and do not require investors to forego liquidity and transparency the way other financial instruments do. They also provide exposure to some asset classes that exhibit very little correlation to traditional bond and equity markets, while at the same time being highly liquid. Investors can gain access to interest rates, equity indexes, foreign exchange, energy, agricultural products and metals through futures. As investors become more sophisticated, they actively look to diversify their holdings and identify asset classes that do not move in lockstep with equities and bonds.

The greater trading volumes witnessed across the region last year will only encourage more investors to embrace the opportunities of futures trading, creating a virtuous circle of added liquidity that will further add to the appeal of these instruments. As investors across the region gain in sophistication, a trend that we will continue to support through our education efforts, we expect retail futures trading to gain further prominence in Asia, to the benefit of investors and the market alike.

Managing Director, Head of Asia Pacific at CME Group

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