Long associated with illicit trading, derivatives are now legally traded in Cambodia, offering investors a new financial tool to hedge risks or realise profits. The Post’s Kali Kotoski sat down with Lawrence Kook, director of Golden FX Link, the first company to receive a derivatives licence from the Securities Exchange Commission of Cambodia (SECC), to discuss the firm’s operations and expectations for the Kingdom’s nascent market.
What is the value in derivatives trading to your clients?
I would describe it as a tool. For example, some of our traditional clients in China are jewellery shop owners who trade in physical gold. When gold prices go up and down they deposit and hedge with us to earn from price fluctuations. The same goes for currencies, which are more geared towards finance players like bankers, securities firms and asset managers, who use this as a tool to diversify their portfolio.
With derivatives trading investors have more options in their portfolio, and with the right investment strategy, combined with different types of risk, it will help investors build a healthy portfolio. Of course, derivatives trading has risk, but so does driving a car. Investors make their own decisions.
Are investors in Cambodia interested in derivatives?
We have a lot of interest from bankers, which is good. A lot of them have been making appointments with us. I prefer to meet with financial institutions more than retail investors. Retail investors are important, but financial institutions can help push derivatives trading.
How can investors in derivatives monitor price fluctuations?
We try to bring a fair, reasonable and transparent trading environment. We know there are still unregulated companies out there and they have many clients, but how can they verify that their prices are correct? You never know when they are price-fixing to get commissions. I know that the SECC has said they are cracking down on unregulated operators, but I can’t speak for the SECC.
How does global stability and economic health factor into derivatives trading?
For me, unstable political environments can be a way to make a profit. Derivatives trading is a very interesting tool because it depends on how ‘unstable’ investors feel, which makes them change their investment strategy. In our market, if you see currencies go up or down, it’s always against the US dollar. We also have cross-currencies, but the most popular tool is the US dollar. So if you think, ‘if something is not stable, buy the dollar.
But also the renminbi is starting to get popular here and offers an alternative, which is a product that we offer. The two countries, China and Cambodia, can work together on this.
How will a more regulated market provide better certainty to the market?
A fair regulated market will bring transparency. It is like compliance in banks, such as having anti-money laundering and know your customer (KYC) policies. The balance between a robust market and regulations is an art. You need to be able to do business without too many hurdles. And we have confidence in the SECC that they will listen to people in the market like us.
That being said, operators that step over the line need to be stopped. For example in my company, if anyone does trading for a client without their authorisation or guarantees profits, they are out of here.
We never guarantee that somebody will make a profit, but we can help them set up stop-loss and stop-profit measures, though that is up to the client’s discretion. We will monitor the market and give them options of when to buy and sell, but we will never guarantee profits. We don’t want people coming here with baseball bats asking where there profits are. I am very strict with that.
This interview has been edited for length and clarity.