What every new trader must know about trading futures in Hong Kong

Hong Kong is a city of trading, trading and more trading. For both Korean and foreign traders, Hong Kong provides an excellent opportunity to trade on a large scale in all assets traded on the world’s major futures exchanges.

However, new traders getting started with futures for the first time have almost no idea how to go about it since they have been told many things from those around them that are not true or just plain wrong. I shall explain some basic facts that new traders should know before entering into any new business venture.

First off, what is Futures Trading?

I’m sure most people reading this already know but let me spell it out for those who don’t: we buy or sell an agreed-upon product for delivery in the future at an agreed-upon price. The product can be anything from Oil to Soybeans and even Gold and Silver.

The reason why we enter into a Futures Contract is that we already know that we will need or want this product in the future and therefore would like to lock in the current price so that we can either buy it later on today’s market, which will not be as good a price or contract with someone else to sell us the same quantity of the product next month at a set price. This allows us to either get a great deal (if prices go down) or make money (if prices go up) without leaving our desks.

How does this work?

Well, Hong Kong Futures Trading is divided into two groups. There are “Futures”, and there are “Options”. We can ignore options for now because they are rather complex, and for the most part, new traders will not be trading them until they have several years of experience under their belt.

When you enter a ‘Futures’ Contract to either buy or sell an agreed-upon quantity of some product at a future date, your position on the market is referred to as either Long or Short.

A long position means that you own something [be it stocks, bonds, futures contracts etc.] and therefore expect prices to go up, while short means that you sold something [perhaps by mistake] before actually owning it. So when people say that they are “Going Long” or “Shorting the market”, that is what they mean.

Which side should you be on?

Well, it depends on the product and your outlook for that particular future. I generally trade in Oil [WTI Crude], so if we take a quick look to see where current prices stand, you will see that prices fell $4 last week.

If I thought that this trend would continue for another week or so, then my outlook would be bearish, and I would want to go short. However, if I thought prices were due to rise next week, I would look for ways to go long.

The critical thing to remember is that there is always a buyer and a seller. This is important because it means that the product’s price is always between these two extremes. If nobody is willing to buy, I can simply sell my futures contract to ‘the other guy’, and we will have made some money.

On the other hand, if nobody wants to sell, I can simply buy from ‘the other guy’ and make money (I pay him slightly less than the market price for his contract). It’s all about looking at how many people want to do each activity and who has control of the price right now.

So, where does this leave us?

Well, to trade, you need an account with a brokerage firm or bank that allows you access to the exchanges. If you are in Hong Kong, I would recommend Phillip Futures for new traders because they have the lowest fees and commissions.

However, there are many good brokerage firms out there, so if you can’t find one that suits your needs locally, then speak to someone at OANDA or Saxo Capital Markets.

It is essential, however, to choose a firm with a wide variety of products (stocks, futures, indices) and have access to all of the major exchanges around the globe.