Posting outstanding annual growth in trading volume, the Thailand Futures Exchange (TFEX) is one of the fastest growing futures markets in the region.
The bourse ranked as the 25th largest futures market in the world in terms of trading volume in 2020, 15 years after launching SET50 Index Futures, says the Futures Industry Association, a global group of futures market operators.
A SUCCESS STORY
TFEX, a subsidiary of the Stock Exchange of Thailand (SET), has recorded growth every year since its inception and positive returns every year in the past decade.
The key supporting factors driving the market are a wide range of products, a facilitative ecosystem, and the early integration of technology on an online trading platform that proved essential for growth, especially during the pandemic.
In international markets, futures markets are typically more mature and active than traditional stock markets, focusing mainly on short-term investments, speculation or hedging.
Futures contracts have two parties agree to buy and sell a particular asset at a predetermined price and time, allowing investors to speculate in all market conditions, even amid volatility.
However, as investors need to plan in advance when and at what price they will buy or sell assets, the market is more suitable for experienced investors with knowledge and high risk tolerance.
This need for experience usually means the number of investors in a futures market is very small. Yet investors in TFEX have generated a higher trading volume and value than those in the traditional stock market because they are highly knowledgeable investors with high trading power and valuation, says the local bourse.
The number of investors in TFEX has continued to increase. There were 260,436 trading accounts as of Aug 31 on TFEX.
The number of investors has increased by an average of 13% per year in recent times. In 2020, investor accounts increased by 21,951, up 16% year-on-year.
In 2020, 48% of investors in TFEX were Thai investors, 23% were foreigners and 29% were domestic institutions. Some 45% of investments were made via the internet, 29% via direct market access, and 26% through marketing staff.
Average trading volume in the first eight months of 2021 stood at 533,152 contracts per day, up about 8% from the previous year. The open interest was 3,493,698 contracts, up 59% from the end of 2020.
The most active product on TFEX is stock futures, with accounted for 49% of the total trading volume, followed by SET50 Futures and gold online futures, which contributed 38% and 8%, respectively.
FOREX RISK
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 steadily grown over the past eight months, with trading volume up 24% or 41,500 contracts per day, and 9% or 12,606 contracts per day, respectively, from 2020.
In 2020, TFEX extended the night trading session for gold and silver futures to 3am, in line with other global futures markets.
After the extension, trading activity during the night session was up 65% because it coincides with the opening of the European and US markets, which are located in the other hemisphere.
The bourse acknowledges some people may be discouraged from investing in global products such as gold, silver and other commodities because of the fluctuating exchange rate, which is a huge risk factor affecting profits when returns are converted back to baht.
Exchange rate risk is a key factor driving some investors to USD futures, which have seen trading volume and value rise significantly this year.
According to TFEX managing director Rinjai Chakornpipat, investment in global assets may gain from baht depreciation this year as the currency has weakened from 30 baht to around 33.50 to the dollar in August, a 12% depreciation from the beginning of the year.
Last year the baht strengthened by 10% from 33 to the dollar in April to about 30 baht per dollar at the end of the year, causing some investors to post reduced profits from their investments, she said.
Ms Rinjai recommends investors and importers/exporters consider foreign exchange risk management when investing in global assets, including USD futures, to offset losses when currencies fluctuate.
Each investor can hold a maximum of 10,000 contracts or $10 million of USD futures on TFEX. However, if the buyer is a business obligated to pay or deliver in dollars, the maximum is 50,000 contracts or $50 million in futures.
USD futures on TFEX have an average trading volume of about 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 to physical dollars.
EXTENDED SESSION
The trading session for USD futures is currently from 9.45am to 4.55pm, which differs from the trading hours for foreign assets in different time zones.
To accommodate investors' increasing demand for USD futures and allow investors to use the futures more effectively, Ms Rinjai said TFEX is planning to extend the trading hours of the futures to 11.55pm by the end of September to cover night trading.
With a longer trading session, USD futures will become an alternative for entrepreneurs who want to manage foreign exchange risk outside of commercial banks' business hours, she said.
In addition, TFEX wants to extend the contract maturity for a new series of silver online futures by the end of September, catering to investors who want longer-term investments.
The new silver futures contracts will expire within the two nearest quarterly months from launch.
Existing silver online futures expire within the nearest quarterly month (March, June, September, December).
Although the bourse does not plan to release any new products this year or next, it is preparing to upgrade its trading platform infrastructure.
TFEX constantly studies the feasibility of new products to meet the needs of investors, said Ms Rinjai.
"Overseas futures markets are now exploring Bitcoin futures for trade," said an industry source who requested anonymity.
"TFEX also sees this as an opportunity, but digital asset businesses are not covered under the Futures Trading Act. TFEX cannot move into digital assets until the law is amended, which will take a long time."
Despite the legal roadblock, TFEX offers a wide range of products covering most mainstream choices to meet investors' needs, said Ms Rinjai.
As a hedge against volatility, TFEX and global futures markets should continue to grow in both trading volume and value in the short term, she said.