By Chen Yunfu

Source: Xinhua News Agency

 

On July 5, the long-waited continuous trading of gold and silver futures was officially launched. Statistics show that the trading volume on the first day was impressive. Analysts believe that continuous trading, as an important way to get China’s futures market aligned with the global market, not only makes it easier for investors to guard against risks caused by price fluctuation in overseas market, but also brings China’s futures market closer to the global arena.

 

Actively traded

 

The dominant gold futures contract on Shanghai Futures Exchange (SHFE) closed at RMB245.45/g at 2:30 a.m. on July 6, down by RMB5.85, or 2.33%. The volume of after-hours trading was over 225,000 contracts, 2.43 times of that of daytime market on July 5.

 

And the dominant silver futures contract closed at RMB3,843/kg, down by RMB80, or 2.29%. The trading volume and turnover were 1,216,000 contracts and RMB70.17 billion respectively, 1.32 times of that of daytime market on July 5.

 

“Generally speaking, the contracts were actively traded during the first session of continuous trading, and the prices moved frequently, basically aligned with that of the global market and the domestic spot market,” said an analyst. Gold and silver prices in the international market tumbled as U.S. non-farm payrolls data was higher than expected, with prices of gold and silver futures in New York market dropped 2.96% and 4.16% respectively.

 

“Domestic participants traded rather enthusiastically,” said an SHFE executive in charge of the after-hours trading. In fact, the trading volume at night exceeded that of the daytime market within just an hour.

 

According to Yang Maijun, President of SHFE, the exchange has made careful preparation to ensure the successful launch of continuous trading, and will make other products available during after-hours in due course. The bourse is now accumulating experiences and best practices, and studying how continuous trading can be carried out during week-long holidays. Broader and more intense price discovery and risk management services will be provided to real economy going global.

 

Risk aversion

 

“Continuous trading, launched amid the trend of China’s real economy going global, is an innovation that will improve the efficiency of China’s futures market and give full play to the functions of the market,” said Yang. He added that the launch 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.

 

“After-hours trading is of interest to domestic investors,” said Sun Yanggang, analyst of Everbright Futures, adding that as western markets currently predominates the prices of key commodities, Chinese investors used to be faced with huge gap risk whenever there was abrupt fluctuation in western markets.

 

Ren Yixin, analyst of Haitong Futures, believes that as China’s after-hours trading overlaps with the key fluctuation period in western markets, Chinese investors can now adjust positions and investment in a timely manner, reducing uncertainty and accumulated risk that used to burst out on the next trading day.

 

Prior to SHFE, Shanghai Gold Exchange had launched after-hours spot trading. “With lower fees and margin requirement, futures market has a competitive edge over spot market,” said Sun. To program traders and large financial institutions, continuous trading means another arbitrage and hedging tool.

 

Some people believed that “program traders will be very willing to participate in after-hours trading to take advantage of lower cost and trading continuity.”

 

Forge ahead with globalization plans

 

“To futures market, continuous trading is an innovative system,” said Ma Wensheng, Board Chairman of Xinhu Futures. He pointed out that the launch of continuous trading will help to enhance RMB’s influence in global pricing. As China’s futures trading session is closely linked to the western market, trades between Chinese and foreign companies can now be settled in RMB, which is a huge innovation in the precious metal sector.

 

Many people believe the move, gearing China to the global market, is an important step towards the internationalization of Chinese futures market.

 

SHFE has revised terms of gold and silver futures accordingly. The delivery months of gold futures are now “monthly contract of the recent 3 consecutive months and consecutive even month contracts within the recent 11 months”. The revision is to make it in line with practices adopted by key international gold futures market, and with market needs, as trading of gold is main made in June and December.

 

In fact, continuous trading is one of the innovative initiatives made in China’s future market in recent years, which include trial programs such as delivery at bonded warehouses and overseas brokerage. “It is safe to say crude oil futures is a typical internationalized commodity futures,” commented an analyst, who believed that the launch of crude oil futures contract, which is now fully developed and has passed tests, will mark the integration of China’s futures market into the global market.