By Xie Hui from the Economic Daily

 

The first session of continuous trading of Shanghai Futures Exchange (SHFE)’s night trading of gold and silver futures, which was launched at 9 p.m. on July 5, saw active transactions.

 

The dominant gold futures contract closed at 245.45yuan/g at 2:30 a.m. on July 6, down by 2.33%, with the trading volume of 225,000, two times of that in the daytime of last Friday. The dominant silver futures contract closed at 3,843yuan/kg, down by 2.29%, with the trading volume of 1,216,000, 1.32 times of that in the daytime of last Friday.

 

“Higher trading volume and volatility and lower spread in the first session of continuous trading than that in the regular daytime hours indicates more active trading during extended hours,” said Yuan Tao, analyst of precious metals at Orient Futures. He believes that to the precious metals market, continuous trading means better investment opportunities and risk control.

 

Reducing exposures to fluctuation

 

According to SHFE’s continuous trading rules, the after-hours trading session of gold and silver futures will commence at 21:00 from Monday to Friday and end at 2:30 the next day; the first trading session on the trading day refers to the period from the beginning of the continuous trading on the previous business day to the end of the first trading session of the daytime market; the call auction will be conducted in an earlier period during the time of continuous trading; transactions executed during the continuous trading will be settled together with that during the daytime market; rules of transaction, risk management system and forced liquidation remain unchanged. With the five-and-a-half-hour night trading hours and the original four disrupted hours, the daily trading hours of gold and silver futures contracts add up to nine and a half hour. The extension of trading hours means that Chinese investors can now reduce their exposure to the fluctuation of prices in the international market due to time gap by responding in a timely manner.

 

China’s gold and silver prices used to follow those of western markets, exposing Chinese futures investors to interrupted risk management due to price gap after the daytime opening.

 

“The move puts the trading hours of Chinese futures market in line with western markets, and effectively guards Chinese investors against risks caused by abrupt price movements,” said Yao Guang, General Manager of Galaxy Futures. He added that as the transactions of gold and silver are most active during western trading hours, the overlapping of trading hours with western markets not only reduces Chinese investors’ risks of position holding, but also helps to boost trading volumes.

 

According to Yang Maijun, Chairman of SHFE, there will be more products available during after-hours trading in due course, and the bourse is now accumulating experiences and best practices, and studying how continuous trading can be carried out during week-long holidays.

 

Optimizing futures market structure

 

Prior to SHFE, Shanghai Gold Exchange (SGE), where spot gold and silver are traded, has launched after-hours trading in May. While the extension of hours of the futures and spot market basically overlaps, the fees charged and margins required by the futures market are lower than those of the spot market.

 

The launch of continuous trading will help China to increase its influence over global prices, make it easier for Chinese investors to manage their risks in real time, and allow futures markets to better serve real economy, said Yang.

 

“While the continuous trading of SGE is limited to corporate participants, that of SHFE is open to individual investors,” commented Yao. He added that market participants are interested in the move because short-swing traders may find investment opportunities out of the major economic announcements and data release made in foreign markets during after-hours trading.

 

Industry insiders believe that if the new launch continues to gain momentum, it will appeal to short-swing traders, investors who used to trade other futures contracts, and Chinese investors who are now trading precious metal products in overseas markets, optimizing the structure of participants on China’s futures market.