Last Updated on 21 September, 2020 by Therobusttrader
The Hang Seng Futures contract tracks the Hang Seng Index (HSI) and was introduced in 1986 by the Hong Kong Futures Exchange in response to increasing interest in the HSI.
In 2000, the Mini-Hang Seng Index Futures were introduced at one fifth the size of the original contract. The introduction of the mini contract enabled individuals with smaller capital access to the Hang Seng market through futures contracts.
Advantages of HSI Futures
As with most types of futures, the Hang Seng Futures contract is a useful tool for traders who wish to hedge against price movements, as well as for those who want to adjust their portfolio allocation with the help of leverage. Here are some more advantages of the Hang Seng Futures Market:
Low Costs – Since the Hang Seng Futures contract is traded on margin, the costs in relation to the exposure you get in the market, is very low.
Long History – The HSI is a market that has over 50 years of history, which has made the index popular among local as well as international investors and traders.
The Hang Seng Index (HSI)
Hang Seng Index market is a market index based on the 50 largest companies in Hong Kong and is one of the most well known Asian indexes. Hang Seng is a market capitalization- weighted index, which means that the impact each stock has on the index is proportionate to the size of the stock. Thus, a smaller stock will not influence the index as much as a larger one.
Hang Seng is broken down into the following sectors/subindexes:
- Industry and commerce
Here you can find more information about the different sectors/subindexes of the Hang Seng as well as the list of stocks that currently are in the index.
History of Hang Seng
The Hang Seng Index was introduced in 1963 in an attempt to create a “Dow Jones Index” for Hong Kong. The Index was compiled by Hang Seng Indexes Company, a subsidiary of Hang Seng Bank, that is still in charge of the index.
Today the Hang Seng Bank is the largest bank in Hong Kong by market capitalization and also manages other indexes such as:
- Hang Seng China Enterprises Index
- Hang Seng China H.financials Index
- Hang Seng China AH Index Series
- Hang Seng China A Industry Top Index
Reasons to Trade Hang Seng Futures
Hong Kong is by many considered a beacon of capitalism. For example, Milton Freeman once described the country as one of the world’s greatest experiment in lassez-faire capitalism. Supporting this claim, since 1995, the Index of Economic Freedom has listed Hong Kong as one of the freest countries in the world, and the stock exchange of Hong Kong is now the seventh largest in the world. Together with free trade agreements and low taxes, Hong Kong has managed to attract the interest and money of many foreign investors, and is regarded as a gateway to Asia.
Knowing all this, it’s not hard to understand that traders and investors choose to trade or invest in the Hang Seng. Still, you might be asking yourself why you should trade Hang Seng futures in particular. Here are some of the main benefits of trading futures:
With futures, you have inbuilt leverage, which means that you can profit greatly from even small moves in the market.
Since futures work with leverage, the cost of commissions and fees relative to the market exposure becomes tiny
You May Go Short
With futures contracts, you can sell short and profit from downward movements in the market.
You can read more about the benefits of trading futures in our post on the topic.
Every market has its own special characteristics, but there are some traits that can be observed in many markets. One such logic that is prevalent among market indexes, is mean reversion.
Mean reversion is the tendency of a market to revert to its mean, once it has made exaggerated moves in one direction. So, of the market has moved excessively to the downside, we may soon expect it to turn around. The mean reverting tendency of index markets is best used to go long by catching a falling market, due to the long term rising trend of the equity markets.
If you are interested in edges and strategies for the Hang Seng Market, have a look at our collection of edges and strategies for a wide range of markets!
New edges are released every month!
Where to Find Price Data
For traders who just want to view the chart of the Hang Seng Futures market, they can do so here.
Traders who wish to import data into their trading platform will have to sign up for an external data feed. E-signal is one data provider for the Hang Seng Futures markets.
Where To Trade Hang Seng Futures
Not all American brokers offer Asian or even European markets.
However, Interactive Brokers (IB) does, and Hang Seng futures can be traded through them. IB is known for its low commissions and is a reliable broker in the trading industry.