WHEN it comes to investment, the first thing that springs to mind is the stock market, bonds and unit trust.
However, the financial market has grown more complicated in recent years, especially with the introduction of derivative instruments offering new ways of investment.
Derivatives are financial instruments that derive their value from another asset or any underlying variable.
Derivatives trading has grown in popularity particularly in developed markets, creating depth in their financial market that changes the playing field.
The advantages of trading in derivatives include lower cost, hedging tools and asset diversification.
According to Hong Kong-based Perfect Hexagon Ltd, the main challenges in the South-East Asian derivatives market are lack of expertise and awareness.
“The misconception about the derivatives market is partly due to the stigma of the instrument being a speculative domain, much like a ‘casino’, whereby only those who gamble participate, as compared to western regions which are used for hedging, ” Perfect Hexagon chief executive officer Sim Tze Jye told StarBizWeek.