Choppy gold prices over the last four years have triggered interest among investors seeking trading opportunities in the yellow metal. Malaysia’s Bursa Malaysia, the main equities and derivatives trading venue has finally launched its benchmark Gold Futures contract on the 7th of October.
The exchange saw traders transact in $3.7 million worth of value with over 900 lots traded. The bourse has set its contract size to 100 grams, thus first day volume reached 90.2kg.
Malaysia has been a slow entrant to major commodities trading, as the country, one of the largest players in palm oil futures, has been sitting on the sidelines and reviewing the opportunities in other commodity contracts.
Bursa Malaysia Derivatives Bhd, CEO, Chong Kim Seng said in a briefing: “We need to become fully-fledged (exchange operator) and diversified. We are aware of the need for more margin hedging instruments.” The exchange first announced its intention to launch the futures contract in July.
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Malaysian investors have been attracted to the retail FX market from 2007 onwards. During this period, a surge in trading activity in Malaysia resulted in hundreds of introducer brokers setting up shop (with overseas brokers) and promoting FX as an alternative investment product. Several investors were lured into the belief of quick and easy money, and one broker who had established a local office, informed Forex Magnates in a telephone interview that they had an estimated 100,000 clients from the Southeast Asian country alone.
Malaysia’s central bank, Bank Negara, the main body that regulates foreign exchange, responded to the spike in activity and issued notifications to users about the legal status of spot FX trading, stating that it’s illegal.
The new gold contract is a positive step in Kuala Lumpar’s aim to become a financial hub and compete with neighbouring Singapore. Furthermore, with mini contracts available, both retail and institutional investors can reap the benefits from a speculative and hedging trading approach.
In addition, with the ringgit still under strict capital controls, arbitrage traders could create new liquidity in dollar ringgit, as they trade Comex gold with Bursa Malaysia’s gold and look to hedge their dollar exposure. Forex Magnates expects the exchange to launch domestic currency futures on the back of strong volumes in metals trading.