When it comes to finding new retail customers in Asia, the playbook should be familiar to derivatives market participants: deploy cutting-edge technology, offer expansive market access, and educate new traders to use those tools responsibly.
The "Futures for a New Generation of Investors" panel at FIA Asia included Kelvin Chia of CQG (left), John Donghoon Shin of Korea Exchange, Marcus Goi of Orient Futures International, and J.B. Mackenzie of TD Ameritrade.
"It doesn't matter where you are in the world, those same three questions and the same three focuses are going on," J.B. Mackenzie, TD Ameritrade's managing director for futures and foreign exchange, said at the FIA Asia conference in Singapore on Nov. 28.
At a panel discussion titled "Futures for a New Generation of Investors," industry professionals shared this view whether they worked for an exchange or a brokerage or whether they were headquartered in Singapore or the U.S. The shared priorities across geographies reflect how derivatives markets have evolved in a way that other asset classes have not.
"Stocks are still quite local," said Teyu Che Chern, CEO of Phillip Futures, a brokerage firm based in Singapore that works with investors all over Asia. "Customers in each country, generally they know the stocks pretty well. But when it comes to futures, it is much more global."
That expansive nature of derivatives markets presents a lot of opportunity given a potentially global customer base, but also challenges since there are no borders to competition. That feeds into the need to continually evolve in the three key areas of technology, market access and education.
Greg Baker, managing director of Charles Schwab Singapore, said the next generation of futures traders are incredibly tech-savvy and have a philosophy that "my best experience online in the past should be the worst experience going forward." That mentality drove Schwab to open a multi-asset platform that provides access to futures along with other asset classes like stocks in one single experience, reducing complexity as well as capital requirements for the client.
However, even rookie traders demand the same level of service as seasoned clients with high portfolio values, said Kelvin Chia, general manager of China operations for technology service provider CQG.
"Traders really know what they want" and "ask really sophisticated questions" like where firms' servers are located or about potential API access. That raises the bar for the kind of offerings that are necessary right out of the gate to welcome new participants in derivatives markets, Chia said.
As with their high standards for technology, new retail futures customers increasingly demand expansive market access right out of the gate. Teyu of Phillip Futures said it is easy to understand the progression of trading for Asian investors who have a desire to reach other markets and opportunities via derivatives.
"In Singapore, if they know Singapore stocks, the first thing we start with is the SIMSCI [MSCI Singapore index futures] which is the Singapore Index equivalent," he said. "After that, the next thing they may trade is the Hang Seng in the same time zone and an index product." After that, it's just a small step to liquid western products like E-mini S&P futures, he added.
A number of European and U.S. exchanges have extended their trading hours to overlap with the Asian trading day as part of a strategy to attract more Asian participants. The latest to make this move is Eurex, Europe's largest derivatives exchange. Starting on Dec. 10, the Frankfurt-based exchange is scheduled to open certain of its stock index and fixed income futures markets several hours earlier. The exchange is mainly focused on attracting more business from institutional investors from the Asia-Pacific region, but it also has established a foothold among Korean retail traders through its partnership with the Korea Exchange. (See "Eurex Advances Start Time to Capture Asia Business" for more information)
At the same time, there are strong flows in the other direction as Asian-Pacific exchanges reach out to other time zones. John Donghoon Shin, chief representative of the Singapore branch of the Korea Exchange, noted that in some regions like Korea there is a desire to leap immediately beyond borders—and for brokers to focus on new global participants as much as new domestic customers. Shin said that 60% of his exchange's volume already comes from foreigners. That has prompted a focus on "accommodation" above all else to ensure that new foreign customers have a breadth of products they can trade regardless of where they are located.
Perhaps most important, however, is providing a proper level of education to ensure new entrants in derivatives markets endure as long-term participants.
Teyu of Phillip Futures said it is common for the broker to groom traders for six months before they place their first futures transaction, because the typical behavior of new traders—particularly retail investors—is to write off the asset class altogether if they lose substantial money on their first few trades.
There's also "confusion that leveraged trading means it is dangerous," and misconceptions of cost structures versus other asset classes like equity options that may not necessarily be more cost-effective than alternatives in futures market when you do the math, he said.
Instant and global access to derivatives markets on a mobile phone is great, Chern said, but long-term success comes down to one thing: "education, education, education."