The futures market is a form of the derivatives market. In essence, it’s where future contracts for commodities are traded. For example, you can buy a contract to purchase one barrel of oil in three months at $50 per barrel. This concept can be applied to commodities from metals to energy and even stock indexes.
There are about 14 exchanges in Singapore where large companies engage in futures trading daily. They usually don’t trade themselves, however, they mostly hire finance or commodity trading firms to do this for them as it takes up way too much capital and manpower if they were to do it themselves.
When trading futures in Singapore, it is important to understand the different strategies traders can employ to maximize profits and limit losses. This article will discuss eight of the most common strategies used by Singaporean traders.
This is one of the most commonly used methods for gauging future price movements. It involves analyzing a company’s financial statements and other publicly available information to predict how its stock will perform in the future.
Technical analysis involves studying charts and historical data to identify patterns that can help predict future price movements. Many traders find this method to be more effective than fundamental analysis, as it allows them to make trades based on past trends rather than current news.
Position trading involves taking a long or short position in a futures contract without predicting future price movements. This strategy is based on the assumption that market prices will move according to their current trend, and traders who use this method will either buy contracts when they believe the price has risen too much, or sell them if they think it has fallen too much.
This strategy requires patience and risk-tolerance, as it only works if prices continue to follow their current trajectory.
Spread trading involves using two different commodities simultaneously to profit from their differences in supply and demand. In Singapore, commodity futures exchanges commonly offer spreads for crude oil products such as gasoline, heating oil and unleaded gas. Using this strategy can be a more conservative way to trade, as it allows traders to limit their losses if one of the commodities moves in the opposite direction to what they expected.
Day trading is the most speculative and risky method of futures trading, as it involves buying and selling contracts within the same day. This strategy is only suitable for traders who are comfortable taking on high levels of risk, as profits can be made or lost quickly.
The futures market is also used to hedge against price risk. If you’re aware that the economy tends to slow down during certain times of the year, then you could use your contracts to secure oil at a low price when everyone else is buying them up. By doing this, you lock in an implicit floor value for the contract and if oil crashes because of some external event then you can sell your contract off without losing too much
Buying and holding is the simplest strategy and involves buying a futures contract and holding it until expiration. This strategy is best used when you believe that the underlying asset’s price will increase over time.
Swing trading is a more advanced strategy that involves buying a futures contract and then selling it after it has increased in value, intending to repurchase it at a later time when the price has fallen back down. This is one of the most common strategies for stock market traders.
Whichever strategy you choose, it’s important to remember that futures trading is a complex process that involves significant risk. Before starting, be sure to do your research and learn as much as possible about the different strategies involved. With some practice and patience, you can use one of these methods to become a successful futures trader in Singapore. Always make use of a reputable online futures broker singapore like Saxo Bank. If you are a new trader, sign up for a demo account and practice your trading strategies before investing your money. It’s also a great way to learn which stocks to trade, if you want to enter that market too.