Although trading stock index futures are considered higher risk and more sophisticated than trading individual shares, and will require more time & effort to master, there are many advantages to trading futures compared to shares.
- No need to cherry pick – How many times have you bought Share A, but Share B went up or the share price fell even when the STI or Dow Jones rallied. With stock index futures, you are trading on the performance of the index as a whole. Your trade is based solely on your view of the market, unlike for shares which are affected by company performance, big boys play or insider information.
- buy or SELL – As futures contracts are obligations, not ownership, you can sell short the stock index legitimately, without have to borrow scripts or buy back within the same day. Unlike trading shares where you are not able to participate in a bear market as you can only buy.
- Low commission charges – commission for futures trades are generally abt Usd10-15 per lot. Shares trading commissions are about 0.25% subject to a minimum of Sgd25 for online trades and sgd40 for call-in, not including clearing & trading fees. Say if you bot 1 lot of SiMSCI at 2028, the contract size is Sgd40560 (Sgd20 x 2028) and you pay a commission of Sgd15 plus GST. For the same amount of sgd40560 in trading shares, you pay Sgd101.40 plus clearing fee, trading fee and GST.
- Access to global markets – Most global stock indices can be traded as stock index futures (ie Dow Jones futures, S&P futures, FTSE futures, HangSeng futures). The futures trading account you open based in Sinagpore will allow you access to global stock markets at the same low commission rates compared to shares.
- No cost of margining – When you hold a open futures position, you need only to put up the required margins as specified by the exchange. There are no interest charges on the amount that is leveraged, unlike in share margining where you are considered to have borrowed the amount of actual contract size and is charged interest.
- Stop loss orders – Most futures contracts allow you to place ’stop loss’ orders to limit your losses or protect your profits so you do not have to watch the screens all the time in case of big market movements.
- No default risk – Every futures trade executed through a futures exchange is guaranteed by the exchange, and the clearing house acts as the counterparty of each trade. In picking stocks, especially in the current market conditions, many companies do not do well and close down causing shareholders to lose their investments.
*Investors are advised to do their homework before plunging into the futures markets. Pls explore our website to learn more.