“TFEX plans to extend trading hours to 11:55 pm by the end of September.” – Rinjai Chakornpipat, General Manager, TFEX
With an outstanding annual growth in trading volume, the Thailand Futures Exchange (TFEX) is one of the fastest growing futures markets in the region.
According to the Futures Industry Association, a global group of derivatives market operators, in 2020, 15 years after the introduction of SET50 Index Futures, the exchange was ranked 25th among the largest futures exchanges in the world in terms of trading volume.
TFEX, a subsidiary of the Stock Exchange of Thailand (SET), has grown every year since its inception and positive returns every year for the past decade.
The main supporting factors driving the market are a wide range of products, a supporting ecosystem, and the early integration of technologies into an online trading platform, which has proven essential for growth, especially during the pandemic.
In international markets, futures markets tend to be more mature and active than traditional equity markets, and focus primarily on short-term investing, speculation, or hedging.
In futures contracts, two parties agree to buy and sell a specific asset at a predetermined price and time so that investors can speculate in all market conditions, even when there is volatility.
However, since investors need to plan in advance when and at what price to buy or sell assets, the market is more suited to experienced, knowledgeable and risk-taking investors.
This need for experience usually means that the number of investors on a futures market is very low. Still, investors in TFEX have generated higher trading volume and value than those in the traditional stock market as they are very knowledgeable investors with high trading power and valuation, says the local exchange.
The number of investors in TFEX has increased further. As of August 31, there were 260,436 trading accounts at TFEX.
The number of investors has recently increased by an average of 13% per year. In 2020, investor accounts increased by 21,951 and 16% more than in the previous year.
In 2020, 48% of TFEX investors were Thai investors, 23% foreigners and 29% domestic institutions. Around 45% of the investments were made via the Internet, 29% via direct market access and 26% via marketing staff.
The average trading volume in the first eight months of 2021 was 533,152 contracts per day, around 8% above the previous year. Open interest was 3,493,698 contracts, an increase of 59% compared to the end of 2020.
The most active product on TFEX are stock futures, which made up 49% of total trading volume, followed by SET50 futures and gold online futures, which contributed 38% and 8%, respectively.
Gold online and USD futures are high growth products with promising returns this year.
According to TFEX, the outstanding volume of gold online and USD futures has grown steadily over the past eight months, with trading volume increasing by 24% or 41,500 contracts per day and 9% or 12,606 contracts per day from 2020, respectively.
In 2020, TFEX extended the night trading session for gold and silver futures in line with other global futures markets until 3 a.m.
After the extension, trading activity increased 65% during the night session as it coincides with the opening of European and US markets located in the other hemisphere.
The stock market admits that when the returns are converted back to baht, some people may be discouraged from investing in global products like gold, silver and other commodities due to the fluctuating exchange rate, which is a huge risk factor to profits.
Exchange rate risk is a key factor driving some investors to USD futures, the trading volume and value of which have increased significantly this year.
TFEX CEO Rinjai Chakornpipat said investments in global assets could benefit from a devaluation of the baht this year as the currency depreciated from 30 baht to around 33.50 against the dollar in August, a 12% depreciation from the beginning of the year is equivalent to.
Last year, the baht rose 10% from 33 to the dollar in April to about 30 baht to the dollar at the end of the year, causing some investors to see lower returns on their investments, she said.
Ms. Rinjai recommends that investors and importers / exporters consider currency risk management when investing in global assets, including USD futures, to offset losses in the event of currency fluctuations.
Each investor can hold a maximum of 10,000 contracts or USD futures worth USD 10 million in TFEX. However, if the buyer is a company obligated to pay or deliver in US dollars, the maximum is 50,000 contracts or US $ 50 million in futures.
USD futures on TFEX have an average trading volume of around 12,500 contracts per day, which is considered liquid, she said.
If investors are interested in accepting physical dollars, they can use the daily dollar exchange service to convert their USD futures positions into physical dollars.
The USD futures trading session is currently 9.45am to 4.55pm, which is different from the trading hours for foreign assets in different time zones.
To meet rising investor demand for USD futures and allow investors to use the futures more effectively, Ms. Rinjai plans to extend the futures trading hours to 11:55 p.m. until the end of September to cover night trading.
With a longer trading session, USD futures will become an alternative for entrepreneurs looking to manage currency risk outside of commercial banks’ business hours, she said.
In addition, TFEX plans to extend the contract term for a new series of silver online futures until the end of September to serve investors who want longer-term investments.
The new silver futures contracts will expire within the next two quarterly months after their introduction.
Existing silver online futures expire within the next quarterly month (March, June, September, December).
Although the exchange won’t launch any new products this year or next, it is preparing to upgrade its trading platform infrastructure.
TFEX is constantly researching the feasibility of new products to meet investor needs, Ms. Rinjai said.
“Overseas futures markets are now studying bitcoin futures for trading,” said an industry source calling for anonymity.
“TFEX sees this as an opportunity too, but digital asset deals are not covered by the Futures Trading Act. TFEX cannot get into digital assets until the law is changed, which will take a long time.”
Despite the legal hurdle, TFEX offers a wide range of products that cover most of the mainstream options to meet investor needs, Ms. Rinjai said.
As a hedge against volatility, TFEX and the global futures markets should continue to grow in both trading volume and value in the short term, she said.