The advantages and risks of futures trading is the focus of a new educational article by Dr. Joseph Fung, an Associate Professor in the Department of Finance and Decision Sciences at Hong Kong Baptist University's School of Business, and Mr. Kevin Cheng, the Hong Kong Exchanges and Clearing Limited (HKEx) Derivatives Market's Vice President of Market Development and Education.

The article begins by answering the question, "What is a stock index futures contract?" It then discusses the benefits of trading stock index futures which include: 1) ease of execution and market timing; 2) lower spread and transaction costs; 3) lower capital outlay; and 4) ease of short selling. Since futures trading is not risk free, the article also highlights the risks of trading futures.

"For those individuals who fully understand and can afford the risks which are involved, the allocation of some portion of their capital to futures trading can provide a means of achieving greater diversification and a potentially higher overall rate of return on their investments," the authors note in their conclusion.

"Understanding the Advantages and Risks of Future Trading" is the latest in a series of educational articles aimed at enhancing public understanding of the derivatives markets and the important role they play in Hong Kong.

A copy of the article can also be found on the following website  - www.hkex.com.hk - in the Library section, under the Reports of Derivatives Market. Past educational articles are also available on the website.