KLMEX Lobbies on the Benefits of Trading Currency Futures

Currency futures are directed at the retail market for two reasons, it permits individuals to trade currency futures over and above their two million foreign allocation limits; secondly the minimum contract size is a $1,000 thereby enabling the retail investors to access the market.

Currency futures offer numerous benefits. They allow individuals to hedge against currency risk and to take a view on the movement of the underlying exchange rate. They also allow individuals to diversify their local and foreign assets. While this is clearly advantageous to retail investors, institutional investors are also able trade these futures within certain limits. Pension funds and long term insurance companies are subject to their 15 % foreign allocation allowance and asset managers and registered Collective Investment Schemes are subject to their 25 % foreign allocation allowance.

The Kuala Lumpur Mercantile Exchange (KLMEX) has worked closely with the Asian trading authorities for the dispensation of currency futures. In the KLMEX budget speech earlier this year, Aaron Kirton, Assistant General Manager for the Trading Division at KLMEX, stated that permitting the KLMEX to establish a Mini Futures market will: “…further develop the region's financial markets and increase liquidity in the currency market.”

The contracts result in a zero sum game – for every buyer there is a seller and the profits of the winner equal the losses of the loser. The KLMEX (www.klmex.org) has approved four market makers who have been granted dispensation to hedge their currency future trades in the relevant markets. These transactions may have an impact, although the initial impact will be reversed when currency futures and hedge transactions are closed out. Authorized dealers currently actively trade in both spot and forward markets - currency future trading will merely add volumes to the amount of hedging transactions already being carried out.

Enterprises and institutions come, on a daily basis, face to face with risks inherent in an increasingly volatile world. To manage these risks and enable global growth, they need access, efficiency, transparency and security. Kuala Lumpur Mercantile Exchange (KLMEX) answers these needs through products, services and technology that facilitate risk management and remove barriers to help the world’s business leaders confidently move forward.