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The Future of Futures Lies in Gold Perpetuals

By Asia Pacific Exchange

Published on September 10, 2021
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From its use in ornamental art and jewellery, the value of gold has grown in prominence over the years, evolving to become an effective and viable hedging tool against market shocks and inflation, and establishing itself as a store of value. Outside of traditional securities, gold offers endless trading possibilities and opportunities.

Asia Pacific Exchange (APEX) acknowledges the importance of precious metals, especially gold, in the economy. Gold is regarded as a safe haven and a source of security during times of uncertainty. Even during some of the biggest market crashes, its value has outperformed other asset classes such as stocks and bonds. Furthermore, Singapore has successfully established itself as one of the world’s leading financial and commodity trading hubs. These reaffirm APEX’s belief in the significance of creating an investment tool for this precious metal.

APEX: Beginning of an Era

Launched in May 2018, APEX is the third derivatives exchange and clearing house in Singapore. Amid heightened geopolitical tensions and the ongoing Covid-19 pandemic, APEX has been looking to diversify its products portfolio.

To offer trading opportunities to clients in the Asia Pacific region, APEX launched the APEX Gold Perpetual futures contract on 6 August 2021.

The value and utility of perpetual futures are often underrated, with majority of derivatives activity still dominated by traditional derivatives contracts. However, APEX foresees great potential in perpetual contracts and recognizes its rising trend. Perpetual futures is a relatively novel financial instrument. Unlike traditional futures contracts, perpetual contracts have no expiration date, allowing the position to be held indefinitely. APEX’s goal is to provide its clients with products that will facilitate broader participation and adoption of futures.

Unique Features

The APEX Gold Perpetual Futures Contract is denominated in US dollars. The mini contract size of 100 g per contract allows small to medium size participants to utilise the contract effectively in accordance with their needs. Settled daily with London Bullion Market Association (LBMA) Gold AM prices, the contract is traded for 19.5 hours on all LBMA trading days, encompassing the business hours of major trading hubs globally.

Some may be curious about the purpose of the perpetual futures contract when there is presence of traditional monthly or quarterly futures contracts on other exchanges. The APEX Gold Perpetual Futures Contract offers the following key benefits:

  • Rollover convenience: As perpetual contracts do not expire, there is no requirement to rollover positions to the next calendar contract as positions will remain open indefinitely. This is designed to cater to the specific needs of participants who require mid-term to long-term exposure.
  • Low margin rates: Participants can benefit from the low margin rates of US$200/contract at APEX, offering a leverage of more than 28 times.1
  • Low trading cost: Unlike traditional monthly futures, perpetual futures are often traded at a price closely aligned to spot markets. APEX Gold Perpetual Futures are tradable at a low exchange fee of US$0.20/contract, allowing spot participants to participate effectively.
  • Reliable pricing benchmark: The contract is settled daily at LBMA Gold AM prices, ensuring that the contract is fairly marked-to-market.

Diverse Use of Contract

The APEX Gold Perpetual Futures Contract is able to satisfy the diverse needs of different participants. Some examples include:

  • Hedging against physical gold: The small contract size and perpetual feature allow participants to take up precise positions in the contract to customize their hedges against potential adverse price movements without delivery obligations.
  • Riding on short-term momentum: Market participants may take up positions in the contract to benefit from potential short-term movements of the gold price.
  • Long-term view: Market participants may take up long-term positions in the contract, without the need to rollover their positions periodically like the traditional monthly or quarterly gold futures contracts.
  • Portfolio diversification: As gold is an important precious metal used by many portfolio managers to diversify their portfolios, the APEX Gold Perpetual Futures Contract provides a cost-efficient tool for diversification.

Promising Future

APEX will work on growing its influence in the derivatives and precious metals market in the following ways:

  • Inventive approach: APEX seeks to widen its product offering, through developing a range of innovative contracts in various asset classes, including plans to launch a Silver Perpetual Futures Contract with similar characteristics to the APEX Gold Perpetual Futures Contract.
  • Establishment of investor base: APEX is committed to ensuring diversity and depth of its investor base, thus ensuring a high level of market liquidity and depth.
  • Enhancement of technical capabilities: APEX is constantly improving its technical capabilities and embracing new technologies to enhance user experience. Notably, its latest upgrade includes a new clearing system, which is on track to go live in Q4 2021.

Notes

1

Gold price at US$57.9/g as of 16 Sep 2021.

APEX AT A GLANCE

In 2018, Asia Pacific Exchange (APEX) obtained Approved Exchange and Approved Clearing House licenses from the Monetary Authority of Singapore (MAS). With that, APEX aims to establish a leading commodity and financial derivatives trading center in Asia, providing Asian pricing benchmarks for commodities and a new Asian financial derivatives risk management platform.

APEX CEO Eugene Zhu (Left) and Mrs Lim Hwee Hua (Right)

APEX is helmed by founder and CEO Eugene Zhu, one of the pioneers of the Chinese futures industry. Mr Zhu has played pivotal roles during the industry’s development. He served as the CEO of Dalian Commodity Exchange (DCE) from 1996 to 2006, CEO of China Financial Futures Exchange (CFFEX) from 2006 to 2012 and was last the vice chairman and president of Shanghai Pudong Development Bank, one of the largest banks in Shanghai.

APEX Chairman Lim Hwee Hua is a former Singapore minister who has served in a number of ministries, including the Ministry of Finance from 1996 to 2011. She has also led several companies in the private sector, including as managing director of corporate stewardship, and subsequently of strategic relations at Temasek Holdings and head of research and director of business development at Jardine Fleming.

For more information on APEX and the APEX Gold Perpetual Futures Contract, visit: https://www.asiapacificex.com/?p=gold_futures

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