TFEX futures expected to help smooth volatility
Starting next month, gold investors no longer will have to visit their local gold shop to punt on price trends. Instead, a telephone call to a broker will be sufficient for anyone seeking to take a position on future prices. Traders will no longer have to hold gold bars, but instead paper contracts once gold futures begin trading on the Thailand Futures Exchange.
Each contract will be equal to 10 baht-weight (152.4 grammes) of 96.5% gold, the standard used locally.
An investor purchasing a single contract will be obliged to post a margin fee, likely 10% of the contract value. Contracts will be quoted for even-numbered months in three periods. With trading due to start on Sept 22, the first contracts will be for settlement in October, December and February.
Prices will be quoted in one baht-weight of gold. Settlement will be financial only, with no physical delivery involved. As with other futures contracts, investors may have increase collateral pledged with brokers if prices change to cover settlement risk.
Thirachai Phuvanatnaranubala, the secretary-general of the Securities and Exchange Commission, said gold futures would help smooth out volatility in the market. ''Without a derivatives market, investors aren't allowed to show different viewpoints about where prices are moving. But with futures, you can buy or sell futures to represent your outlook,'' he said.
Gold and jewellery traders will also be able to use futures as a hedge to reduce risks in their operations by locking in future prices. The TFEX has invited gold shop owners and traders to become futures brokers.
''In the future, gold investors may trade futures contracts right from their local gold shop if the shop is a broker on the TFEX,'' Mr Thirachai said.
The TFEX is also expected to introduce a second gold futures contract, based on a one-kilogramme bar (65 baht-weight), and aimed directly at wholesale traders and jewellery businesses.