Since July 5, 9:00 p.m., the long-awaited consecutive trading (also known as “night trading”) of gold and silver futures will be officially unveiled at Shanghai Futures Exchange. Under the arrangements, trading of gold and silver futures will run from 9:00 p.m. to 2:30 a.m. of the next day. This means that since then, on the basis of the well-established intermittent four-hour trading hours (9:00-11:30 p.m. and 1:00-3:00 a.m.), gold and silver futures trading duration will be extended to nine and a half hours. This not only fills night trading period gap of the domestic futures market, but also implies that the domestic precious metal futures trading period will be suitable for trading sessions of important metal markets across Europe, America and other regions.

It is generally believed by insiders that night trading coincides with active sessions of precious metal markets in the US and London so that the launching of night trading is helpful for investors who now are able to effectively circumvent “overnight risks”, which will not only strengthen the linkage with overseas precious metal markets, but also will enhance Shanghai’s discourse power in the international market to some extent. “Night trading will make domestic and international gold and silver markets more closely linked, enhance the continuity of prices, upgrade the authoritativeness of the domestic futures prices and enrich the trading mode of the domestic market. From the investment perspective, night trading will undoubtedly diversify trading modes of domestic market while helping investors to avoid the risk of overnight international market price fluctuations, which is of great significance for improving the domestic precious metal market”, an executive of futures company says.

In recent years, with continuous internationalization progress in the Chinese commodity market, the synergy between commodity futures market and international market has been increasingly inseparable, while price volatility has become more and more frequent and intense. In this context, investors make increasingly stronger appeal to extend trading hours of futures market. In particular, the call for night trading is becoming increasingly louder in precious metal futures market. Since the beginning of 2013, the international gold market has witnessed volatile movements. The most typical case is price slump on April 12 and April 15, which in a single-day the prices of gold and silver dropped by more than 5%. The opening time is not uniform, the domestic market is often affected by the international market, it opens with substantial lows and even sees limit down at opening quotation time[K1] . As a result, many domestic gold futures investors “pour out endless complaints” about that. As there is no night trading, intraday offer responds to overnight volatility of ask-price and offer by means of gapping. Sun Yonggang, an analyst of Everbright Futures, comments that overnight risk of gold and silver futures is higher than that of any other variety. Especially the domestic gold and silver markets are always shadow markets of the international gold prices.

Yang Maijun (President of Shanghai Futures Exchange) has recently said that as gold is an international financial commodity, its main pricing mechanism is determined by Europe and America. After night trading of gold and silver futuresis launched, trading simultaneously with the European and American markets can be achieved. The reason why gold and silver are firstly selected is that these two varieties are most closely linked with the international market, and facilitate domestic investors to manage their risks.

Experts point out that as dominant right for gold and silver pricing is possessed by New York Commodity Exchange (COMEX) and London Bullion Market Association (LBMA), many events with significant impacts on the precious metal prices occur in the US trading hours and London trading hours. The brisk gold trading sessions are also available after the opening of the US market, that is from 9:00 p.m. to 2:30 a.m. Beijing Time. However, this period coincides with the adjournment phase of the domestic market. As ask-price offer market sees volatility and domestic market adjourns, the contracts are likely to continuously gap so that investors face up to serious overnight risks.

 “The Launch of night trading is a major institutional innovation for Chinese futures market, which is of great significance. The debut of night trading plays an important role for seizing pricing rights of RMB in the international market and stabilizing the risks of foreign exchange fluctuations”. The abovementioned executive of futures company says that hedging transactions will appear at first and the Chinese trading participants can readily hedge with overseas counterparts at any time. In this way, the advantage lies in matching with foreign markets. It is estimated that innovative trading instruments and almost round-the-clock hedging will emerge on this market soon. Meanwhile, some relatively large-scale funds on overseas markets may come back to the domestic market due to the launching of night trading, which is conducive to the expansion of position scale in the Chinese market. Influencing power of the Chinese prices will be greatly reinforced.

In the insiders’ viewpoint, as a new trading mechanism, night trading will infuse new vitality into gold and silver futures and the domestic precious metal futures market is expected to expand further. “After the launching of night trading of gold and silver futures, the attractiveness of these two varieties will be higher for investors. Moreover, compared with Gold and Silver T + D in Shanghai Gold Exchange, gold futures commission will be much lower and the margin ratio of such business will be also still lower, which will attract some trading customers of Shanghai Gold Exchange to swarm to Shanghai Futures Exchange. Liu Huiyuan, an analyst of CITIC Securities Futures, also believes that night trading launched by Shanghai Futures Exchange will attract more domestic investors engaged in precious metal ask-price and offer to return to China, thereby facilitating the optimization of the structure of China's futures market participants and promoting the overall vitality, long-term positioning and the development of domestic precious metal futures.

According to the data, Shanghai Futures Exchange began to comprehensively launch the trading system running test on May 20, and started to launch the simulated night trading on June 25. At 2:30 a.m. on July 3, Shanghai Futures Exchange completed the simulated night trading drill for the gold and silver futures contracts, then various simulated consecutive trading were successfully completed. According to the statistics, the simulated consecutive trading witnessed 842,700 gold futures contracting lots and gross contracting amount of 210.281 billion Yuan, the average daily turnover volume of 140,000 contracting lots and average daily contracting amount of 35.047 billion Yuan, i.e., 1.1 times intraday trading results during the same period; simulated consecutive trading witnessed 3,112,600 silver futures contracting lots and gross contracting amount of 182.28 billion Yuan, average daily turnover volume of 518,800 contracting lots and average daily contracting amount of 30.38 billion Yuan, i.e., 0.67 time intraday trading results. “165 members of the first batch participated in night trading, including 149 futures companies, 10 commercial banks and six metal companies. During the simulated night trading period, all business aspects operated smoothly, technology systems ran smoothly, market transactions were brisk, price trend was realistic and fluctuations were frequent. This basically reflected the firm offer situations of recent drastic fluctuations of international market”, a relevant person-in-charge of Shanghai Futures Exchange introduces.