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Derivatives: How to start trading in contracts on underlying assets

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Derivatives can be profitable if the investor has knowledge of the markets and clearly understands the related risks. SUPPLIED

Derivatives: How to start trading in contracts on underlying assets

Derivatives trading is the trading in contracts for differences derived from underlying assets as traded on the market.

These assets include equity securities, debt securities, indices, precious metals, crude oil, natural gas, commodities and currencies, as well as principal-protected schemes.

All of these derivatives instruments are financial instruments – monetary contracts between parties – and types of securities.

Trading derivatives requires vital players such as a central counterparty (CCP), a derivatives broker (DB) and a derivatives representative (DR).

The CCP acts as counterpart to one or more derivatives trader, becoming a buyer to every seller, and a seller to every buyer.

The derivatives broker provides services for derivatives trading in the name of their clients, while the derivatives representative opens and manages the derivatives trading account, and provides other services in the name of the DB.

In order to trade derivatives, an investor should open a trading account with a derivatives broker – one licensed by the Securities and Exchange Regulator of Cambodia (SERC).

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They need to complete an account opening form and a risk acknowledgment form, and sign a client agreement for the trading of derivatives with the derivatives broker via a licensed derivatives representative.

To start trading, the investor must deposit funds in a derivatives client money account (CMA) with a cash settlement agent (CSA) accredited by SERC.

The central counterparty is a derivatives trading platform provider, and the investor places trading orders through the trading account opened with the derivatives broker and forwarded to the CPP through the trading platform.

Derivatives trading can be done online via the Meta Trader 4 (MT4) or Meta Trader 5 (MT5) electronic trading platforms.

Derivatives can be profitable if the investor has knowledge of the markets and clearly understands the related risks. Every investment has its risks, and the same is true with derivatives – they are high risk, high return.

Based on international economics and affected by global politics, the price of derivatives fluctuates daily.

Investors should therefore keep abreast of movements in global economics and developments in world politics, and correctly analyse market trends – as well as choose a company licensed/authorised by SERC.

The key players involved should be companies licensed/authorised by the SERC – the regulator of the securities sector in Cambodia.

As of the second quarter of this year, 35 companies received licensing/authorisation from SERC to carry out derivatives business.

The public can search for companies licensed/authorised by the SERC through the SERC website or via the QR code.

References:

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Prakas No 004/15 SECC/Pkr Dated July 2, 2015 on Licensing and Supervision of Derivatives Trading.

Prakas No 005/20 SECC/Pkr Dated May 5, 2020 on the amendment to Prakas No 004/15 SECC/Pkr Dated July 2, 2015 on Licensing and Supervision of Derivatives Trading.

Guideline No 001/20 SECC/Knn dated June 8, 2020 on Account Opening Form, Client Agreement Form, and Risk Acknowledgement Form for Derivatives Trading.

Prepared by: Securities and Exchange Regulator of Cambodia, Securities Intermediaries Supervision Department.

Email: [email protected]. Phone: 023 885611.

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