The futures market offers various opportunities for market players and traders/speculators to express their view on a particular asset/commodity/financial instrument.
Often, traders focus on trading the futures market via the US futures exchanges (eg. CME). However, the futures market in China has grown to become a mature market with a suite of unique offerings – hence opening up to a variety of opportunities.
In this post, let’s dive into the exciting world of futures market in China!
What is the China futures market?
China’s development of its own futures market started in 1988, where the country began preparing for its derivatives market.
After more than 3 decades of development, China's futures market has matured with 131 listed futures & options products (as of the end of 2023).
The regulatory bodies of China’s futures market:
There are 5 pillars of regulatory/authority bodies keeping China’s futures market in check, namely:
#1 China Futures Association (CFA):
Promotes the self-discipline management of the China futures industry
Certifies and registers Futures professionals
Provides education
#2 China Futures Market Monitoring Center (CFMMC)
Monitors futures margin security and market operation
Governs futures investor protection fund
Governs account-opening process of futures account
#3 China Futures Exchanges:
Provides venues and facilities for centralized futures trading
Organizes and supervises futures trading
Implements self-regulatory management
#4 China Securities Regulatory Commission (CSRC)
Leads, coordinates, and supervises the other bodies
#5 Securities Regulatory Bureau
Assists CSRC in regulating the Futures market in China
The 6 China Futures Exchanges:
There are a total of 6 futures exchanges in China, namely:
#1 Dalian Commodity Exchange (DCE)
Founded on February 28, 1993, DCE is the only futures exchange in Northeast China.
After over 20 years of standardized operation and steady development, DCE has become China's important futures trading center and the world’s largest futures trading market of agricultural products, plastics, coal, and iron ore.
Top futures products of DCE:
Iron ore, coke, coking coal, linear low-density polyethylene (LLDPE), polyvinyl chloride (PVC), No.1 soybean, No.2 soybean, soybean meal, soybean oil, palm oil, corn, and corn starch.
#2 Shanghai International Energy Exchange (INE)
Registered in 2013, the INE is a subsidiary of the Shanghai Futures Exchange (SHFE).
INE operates the listing, trading, and settlement affairs of energy derivatives including crude oil, natural gas, and petrochemicals.
Example of futures products listed on INE:
Crude oil
#3 Zhengzhou Commodity Exchange (ZCE)
The ZCE was established as China’s first pilot futures market in October 1990 and is directly governed by CSRC.
ZCE currently lists a wide variety of products, covering crucial fields of national economy such as grain, cotton, oil, sugar, fruit, energy, chemical, textile, metallurgy, and construction materials.
Futures products listed on ZCE:
Rapeseed meal, cotton, cotton yarn, white sugar, methanol, common wheat, strong gluten wheat, rapeseed, rapeseed oil, and thermal coal.
#4 Shanghai Futures Exchange (SHFE)
There are 16 futures products listed on SHFE, including copper, aluminum, zinc, lead, nickel, tin, gold, silver, steel rebar, steel wire rod, hot rolled coil, crude oil, fuel oil, bitumen, natural rubber, and paper pulp.
The copper futures listed on SHFE has become one of the three most influential copper futures markets in the world.
#5 China Financial Futures Exchange (CFFEX)
The CFFEX is a demutualized exchange dedicated to financial derivatives trading and settlement, and was established in 2006 by the Shanghai Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, Shanghai Stock Exchange, and Shenzhen Stock Exchange.
Top listed futures products on CFFEX:
CSI 300 Index Futures, CSI 500 Index Futures, SSE 50 Index Futures, 2-year Treasury Bond Futures, 5-year Treasury Bond Futures, and 10-year Treasury Bond Futures.
#6 Guangzhou Futures Exchange (GFEX)
Established in 2021, the GFEX is the first exchange with mixed ownership (such as Shanghai Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, and China Financial Futures Exchange).
Being the first mixing ownership exchange, GFEX is established with the aim of strengthening the multilevel capital market and developing the financial derivatives market.
Top listed futures on GFEX:
Lithium, silicon metal
Introduction to key China-listed futures products
#1 Shanghai Crude Oil (SC) - listed on the Shanghai International Energy Exchange (INE)
The Shanghai Crude Oil futures (SC) is a physical-settlement contract priced and traded in Renminbi (RMB).
SC was listed in 2018 and is the first commodity futures product in the Chinese mainland that is open to overseas investors.
In 2020, both the trading volume and open interest of SC increased significantly. Specifically, the cumulative trading volume reached 41.58 million lots, and the cumulative market turnover totaled RMB 11.96 trillion.
According to the Futures Industry Association (FIA), SC was ranked 16th among global energy futures and options by trading volume and was second only to the market size of WTI and Brent by crude futures.
#2 TSR20 (NR) - listed on the Shanghai International Energy Exchange (INE)
Listed in 2019, the rubber futures (TSR20) is the second product open to overseas investors.
TSR20 is one of the main natural rubber, which consists of natural latex collected from Hevea brasiliensis (rubber tree), which is further made into solid elastics through solidification, drying, and other processes.
TSR, also known as technically specified rubber is a production process that goes into producing standard rubber. This type of rubber is classified according to its physical and chemical property indicators, such as impurities, ash content, nitrogen content, volatile component, initial plasticity, plastic retention index, and color index.
#3 Low Sulphur Fuel Oil (LSFO) Futures - listed on the Shanghai International Energy Exchange (INE)
LSFO futures was listed in 2020 and is currently the only physically-delivered LSFO futures contract in the world.
LSFO is a type of refined oil used in oil refining and chemical, transport, and construction. It is also essential as a fuel used by ships, which run 90% of global trade.
Since 2020, LSFO has become a mainstream product for Marine fuel as the International Maritime Organization (IMO) now requires a sulfur cap of 0.50% m/m on fuel oil used by ships worldwide.
As such, LSFO provides the market with a more effective tool to hedge risks as the global shipping industry transforms from high to low-sulfur fuel.
#4 Copper (CU) - listed on the Shanghai Futures Exchange (SHFE)
Copper futures is among the first futures products for industrial commodities offered in the Chinese market.
Of all futures currently available in China, copper futures boast one of the most developed markets and deepest industry engagement, operating as a pricing benchmark for spot copper trades nationwide.
#5 Iron Ore Futures - listed on the Dalian Commodity Exchange (DCE)
Iron ore is the primary raw material used in steel production, which is a key material used in construction, ship building, and many manufacturing activities.
The DCE Iron Ore Futures was launched in 2013, and is currently the world’s largest iron ore derivatives market.
#6 Refined, bleached, and deodorized (RBD) Palm Olein Futures - listed on the Dalian Commodity Exchange (DCE)
RBD Palm Olein is a product of fractionation from palm oil, and is mainly used in salad and cooking oil.
Launched in 2020, the RBD Palm Olein Futures is the first internationalized agriculture futures product from the China futures market.
#7 No.1 Soybean, No.2 Soybean, Soybean Meal, and Soybean Oil Futures - listed on the Dalian Commodity Exchange (DCE)
DCE also offers a suite of soybean futures products, namely the No.1 soybean futures (launched in 2002), No.2 soybean futures (2004), soybean meal (2000), and soybean oil futures (2006).
No.1 soybean are contracts based on non-genetically modified soybean (GMO) for edible purposes. On the other hand, the No.2 soybean contracts are based on non-genetically modified soybeans and GMO soybeans for crushing purposes.
Meanwhile, soybean meal is derived from soybeans and is produced from the grinding of high-quality residues of soybean into a yellowish-green flour. Thanks to the high protein value of soybean meal, it is primarily used as an important staple in livestock and poultry diets.
Finally, soybean oil is extracted from soybeans. It is used as a vegetable oil for cooking thanks to it being a good source of healthy fats, including Omega-3 fatty acids and polyunsaturated fats.
#8 Purified Terephthalic Acid Futures (PTA) listed on Zhengzhou Commodity Exchange (ZCE)
Introduced in 2006 for domestic traders, the PTA futures was expanded to international trade and financial services in 2018.
PTA is an important primary raw material in the production of polyester, which is used to make plastic bottles, as well as the production of polyester fibers, films, and resins.
As of now, the Zhengzhou Commodity Exchange (ZCE) is the only exchange offering PTA futures for trading globally.
#9 Rapeseed Meal Futures (RM) listed on Zhengzhou Commodity Exchange (ZCE)
Rapeseed meal is a protein-rich ingredient that is widely used to feed all classes of livestock. It is often fed as a substitute for soybean meal.
Verdict: Explore the exciting offering of the China futures market!
In this post, we've explore the various exchanges and key products of the China futures market.
In Part 2, we'll look at margin - an important aspect of futures trading, and what is the key difference between margin calculation for the US and China futures market!
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
Leverage is a financial tool that comes with its advantages and risks. Please learn and understand both the upsides and downsides of leverage before using it for trading.
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