Hong Kong’s trade is at the forefront of Asia, and it is an active futures market. The Hong Kong Futures Exchange (HKFE) offers a range of products for traders to diversify their investments; however, only certain strategies work and others.
Futures contracts are traded on the Hong Kong Mercantile Exchange (HKMEx) under many different categories. These categories include interest rates, equity indexes, metals and energy, among other things. The market is based on prices in U.S dollars per metric ton terms.
Best strategies for trading futures
There are various strategies for trading products on HKMEx, and below, we list the top 5 strategies.
1. Technical analysis
Many traders also use technical analysis in conjunction with their fundamental analysis to help them time their entries and exits. Technical analysis looks at past prices and volume data to try and identify patterns that may suggest where the market is heading in the future. Fundamental analysis looks at a company’s financials and overall health to try and determine whether it is worth investing in.
2. Trend following
The second strategy is trend following which involves buying securities that are going up in price and selling those that are going down in price. This technique requires the trader to understand what trend they are trading because this can often be difficult to identify. A positive side effect from using this strategy is if a trader happens to guess correctly on a reversal, it can lead to substantial gains.
3. Momentum trading
Another popular strategy among Hong Kong traders is momentum trading. This strategy is the same as trend following, except traders look for securities with solid upward momentum to invest in rather than just identifying an overall trend. If this technique is used correctly, it can help identify shorter trends, which are often easier to trade compared to longer ones.
4. Breakout strategies
Investors also use breakout strategies when trading futures in Hong Kong. Breakout strategies rely on spotting significant events that may affect future prices and labelling them as breakouts. Any news event can cause a break, so investors have to recognise the effect of breaking news on price action before using this strategy successfully. The other primary type of breakout traders is those who wait for an asset’s price to reach a certain level before buying or selling.
5. Options trading
The final strategy that is popular in Hong Kong is options trading. Options trading allows investors to trade underlying assets without owning the actual security. There are a variety of options strategies that traders can employ, and this type of trading often offers more flexibility than some of the other strategies mentioned.
Risks associated with futures trading
Traders should also be aware of the different risks associated with trading futures. The most common risks are counterparty risk, liquidity risk and price risk. Counterparty risk is the risk that the other party to the trade will not fulfil their obligation.
Liquidity risk is the risk that there may not be enough buyers or sellers in the market to execute a trade at the desired price. Price risk is the risk that the security price may move against you, causing you to lose money on the trade.
Traders need to understand these risks and have a strategy to manage them. Traders should generally consider using stop-loss orders to limit downside risk when executing trades. Also, they should only trade with money that they can afford to lose since trading is a risky venture by nature.
Whichever strategy an investor decides to use when trading futures in Hong Kong, it is essential to remember that each will have its risks and rewards associated with it. It is also vital to stay up-to-date on current news events as these can often significantly impact future prices. We recommend that you contact a reputable online broker from Saxo Bank to help you get started with a demo account and start trading immediately. So try it now and start your investment journey today.