Moving up: A positive outlook for the futures market


The Thailand Futures Exchange (TFEX) has been operating under the Derivatives Act of B.E. 2546 (2003), which allows the TFEX to trade futures, options and options on futures where the permitted underlying assets are: equities, including stock index and individual stocks; debt instruments, meaning bonds and interest rates; commodities, precious metals and base metals; and others indices, such as exchange rates, commodities indices and others as announced by the Securities and Exchange Commission.

Futures On Offer

As seen in the graph above, the total market daily average volume of the TFEX has increased significantly since 2011. SET50 Index futures are the most liquid and popular instrument among investors due to the fact that they can be used as a tool for speculation and hedging against stocks in the SET (Stock Exchange of Thailand) 50 Index, which contains the 50 largest listed companies on the SET. The runner up in terms of liquidity is single stock futures (SSF), with a total of 93 underlying assets currently. SSF are a useful hedging tool to manage equity market risk. They provide investors with alternative investments and another means of profiting from stock price movements.

Gold futures are future contracts with gold – 96.5% purity – as an underlying asset. One of the oldest precious metals known to man, gold has been valued for thousands of years as a global currency, a commodity, an investment and an object of beauty. The characteristic of gold prices movements that do not correlate with the equity market makes gold futures a very interesting investment option. Holding precious metals such as gold in a portfolio can give apparent benefits in the form of speculative gains, investment gains, hedging against macroeconomic and geopolitical risk, and wealth preservation. Experienced and educated investors have long known that gold and related investments can be strong investment choices. Currently, the TFEX offers two types of gold futures: BT50 ($1.41), launched in February 2009; and BT10 ($0.28), launched in August 2010.

One of the obstacles for investors trading futures on the TFEX is the lack of liquidity when it comes to some products, such as SSF. In order to make these futures truly useful instruments for investors, brokerage firms can utilise transactions known as block trades. Block trades give investors the opportunity to trade futures at negotiable prices and quantities, and are executed apart from open outcry or electronic markets. Therefore, investors need not be concerned about the difficulty of opening and unwinding positions in SSF contracts. Due to the characteristics of futures contracts, investors can profit from both bull and bear markets. Meanwhile, several other futures such as US-dollar and rubber futures seem to have brighter prospects amid increasing trading volume based on better understanding among investors.

2017 Projections

Due to its success as demonstrated over the previous years, the TFEX is seeking to further develop Thailand’s futures market with a focus on growth, both in terms of creating awareness about how investors can make use of futures and increasing the instruments in the futures market in order to make the TFEX more useful for investors.

The TFEX intends to broaden the domestic investor base by expanding the use of digital technology and educating investors about it at the same time; cooperating with brokerage firms to gain access to potential investors; and bringing human resource departments in brokerage firms up to date and enhancing their understanding of futures. It also plans to develop and provide more products and services via the TFEX, as well as refine existing products and introduce new products. New services will include extended night session trading; increased liquidity among existing instruments such as options and RSS3D; and more useful instruments like Gold-D (physical delivery). Lastly, to improve international visibility it will establish more connections with foreign investors and make it easier to access the TFEX and increase the exchange’s visibility worldwide.