Your Complete Guide To STI ETF (SPDR & Nikko AM)


A History of Futures Trading in the United States. Joseph Santos, South Dakota State University. Many contemporary [nineteenth century] critics were suspicious of a form of business in which one man sold what he did not own to another who did not want it.

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Why Buy Sell Signal Is Important?

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They could park their money in index ETFs and grow their money over the long run while they enjoy other activities that life has to offer. That said, you must have the ability to tolerate such losses and stay invested for the long run instead of selling in panic. It was an amazing growth story and today we have many established companies that have began expanding their influence in Asia and other parts of the world. I am proud to see the Singapore Brand being admired by our neighboring countries.

The world generally believes that Asia is the next growth story. Singapore appears to be in a good position as a East-meets-West hub and should benefit from the rising affluence of Asians. If this is true, as demand for goods and services grow in Asia, I believe some of our homegrown companies would be able to capture parts of the growth and make profits for shareholders.

Comparison of cost structure between a typical unit trust and a typical ETF. There is an ongoing management fee that you need to pay for both unit trusts and ETFs. However, the former is much higher than the latter, usually by a few times. The fee for an actively managed unit trust is around 1. This means the unit trust is 5 times more expensive than the ETF.

Talk about compounding costs, this will erode a sizeable profits over the long run. This is usually a small amount but nonetheless a cost. This fee may not be incurred by some companies. Some do not charge this fee so you must be very clear before you commit to any investments. For ETFs, selling means incurring brokerage fee of 0. To summarize, the ETF definitely beat unit trusts in terms of costs. The next question is to ask is that since unit trusts are expensive, are they worth the money?

Can they deliver higher returns? You can go on to read the works of John Bogle and Burton Malkiel. The following spells out the risks, which may not be an exhaustive list. These stocks may also lack behind stocks listed in other countries should Singapore become a less worthy investment to pursue by investors. The degree of volatility can be extremely high during a stock market crash and an investor must be willing to accept the potential price swings that come with the investment in STI ETF.

This has been discussed in the early part of this article. But in the absence of these market makers and low interest from retail investors, the STI ETF may become illiquid and the buy and sell price spread may expand, and deviate greatly from the Net Asset Value of the Fund. An ETF still requires fund management, even though there is no active decision making on security selection or asset allocation.

The risk is that the fund management is fraudulent or has high degree of negligence that the Fund fails to achieve its objective that it set out in the first place. An accepted fair value of an index is when PE is about Any higher suggests that the market is overvalued and some investors prefer not to invest in the STI ETF or to avoid stocks in general.

The market rate for brokerage commission in Singapore is 0. You must invest in full lot sizes and one lot is equivalent to units. It may not be worthwhile to invest a small amount of money via the brokerages as your percentage cost may be too high. The alternative is to start a monthly investment plan which we will discuss in the next section below. Instead of guessing whether the stock market is overvalued or undervalued, which most investors get it wrong all the time, you can choose to dollar cost average the STI ETF.

This is especially useful for people fresh out from school and do not have enough capital to begin investing. Overtime you would collect enough shares to make your returns meaningful.

The table below would bring you through the comparisons of 4 companies that provide this monthly investment plan for STI ETF. And as you surpass this minimum cost with a larger investment per month, your cost can only go as low as 0. You have learned about compounding effect is important to attain wealth. Reinvesting dividends is one of those ways to take advantage of this effect. When you start a monthly investment plan, you aim to do it for at least 5 years.

Yes, POEMS is relatively more expensive but the compounding effect will dwarf the costs over the years. You need to refer to procedures prescribed by the companies as they differ. As you would have accumulate substantial number of shares over the years, you should be able to avoid the minimum fees. These monthly investment plans are all custodised accounts. You need to pay an additional fee to transfer the shares to your CDP account.

Let me make it easy for you to decide. To do so, you need to apply a CPFIS scheme account with one of the local banks and link it up with your brokerage account. Should an investor invest in one lump sum?

Second, clearinghouse members, and not outside traders, reconcile offsets at the end of trading each day. Commission merchants also maintain margins with clearinghouse members, who maintain them with the clearinghouse. The margin account begins as an initial lump sum deposit, or original margin. So, the clearinghouse breaks even on every trade, while its individual members. In turn, clearinghouse members debit and credit accordingly the margin accounts of their commission merchants, who do the same to the margin accounts of their clients i.

This iterative process all but assures the clearinghouse a sound financial footing. Futures exchanges create futures contracts. And, because futures exchanges compete for traders, they must create contracts that appeal to the financial community. For example, the New York Mercantile Exchange created its light sweet crude oil contract in order to fill an unexploited niche in the financial marketplace. Not all contracts are successful and those that are may, at times, be inactive — the contract exists, but traders are not trading it.

For example, of all contracts introduced by U. Consequently, entire exchanges can become active — e. Government price supports or other such regulation can also render trading inactive see Carlton , Futures contracts succeed or fail for many reasons, but successful contracts do share certain basic characteristics see for example, Baer and Saxon , ; Hieronymus , To wit, the underlying asset is homogeneous, reasonably durable, and standardized easily describable ; its supply and demand is ample, its price is unfettered, and all relevant information is available to all traders.

For example, futures contracts have never derived from, say, artwork heterogeneous and not standardized or rent-controlled housing rights supply, and hence price is fettered by regulation. Futures markets have three fundamental purposes. The first is to enable hedgers to shift price risk — asset price volatility — to speculators in return for basis risk — changes in the difference between a futures price and the cash, or current spot price of the underlying asset.

Because basis risk is typically less than asset price risk, the financial community views hedging as a form of risk management and speculating as a form of risk taking. Generally speaking, to hedge is to take opposing positions in the futures and cash markets. Hedgers include but are not restricted to farmers, feedlot operators, grain elevator operators, merchants, millers, utilities, export and import firms, refiners, lenders, and hedge fund managers see Peck , Meanwhile, to speculate is to take a position in the futures market with no counter-position in the cash market.

Speculators may not be affiliated with the underlying cash markets. To do so, he takes a position in the futures market that is exactly opposite his position in the spot — current cash — market.

Recall that to sell buy a futures contract means to commit to sell buy an amount and grade of an item at a specific price and future date.

Notice, because Hedger A has both sold and bought a July futures contract for 5, bushels of corn, he has offset his commitment in the futures market. This example of a textbook hedge — one that eliminates price risk entirely — is instructive but it is also a bit misleading because: So, in reality hedgers cannot immunize entirely their cash positions from market fluctuations and in some cases they may not wish to do so.

Again, the purpose of a hedge is not to avoid risk, but rather to manage or even profit from it. For example, lenders are relatively more likely to finance, at or near prime lending rates, hedged versus non-hedged inventories. In the absence of futures markets, hedgers could only engage in forward contracts — unique agreements between private parties, who operate independently of an exchange or clearinghouse. Hence, the collateral value of a forward contract is less than that of a futures contract.

Forecast errors are expensive, and well informed, highly competitive, profit-seeking traders have a relatively greater incentive to minimize them. Into the early nineteenth century, the vast majority of American grains — wheat, corn, barley, rye and oats — were produced throughout the hinterlands of the United States by producers who acted primarily as subsistence farmers — agricultural producers whose primary objective was to feed themselves and their families.

Although many of these farmers sold their surplus production on the market, most lacked access to large markets, as well as the incentive, affordable labor supply, and myriad technologies necessary to practice commercial agriculture — the large scale production and marketing of surplus agricultural commodities. At this time, the principal trade route to the Atlantic seaboard was by river through New Orleans 4 ; though the South was also home to terminal markets — markets of final destination — for corn, provisions and flour.

Smaller local grain markets existed along the tributaries of the Ohio and Mississippi Rivers and east-west overland routes. The latter were used primarily to transport manufactured high valued and nonperishable goods west. Most farmers, and particularly those in the East North Central States — the region consisting today of Illinois, Indiana, Michigan, Ohio and Wisconsin — could not ship bulk grains to market profitably Clark , 4, The Great Lakes provided a natural water route east to Buffalo but, in order to ship grain this way, producers in the interior East North Central region needed local ports to receive their production.

Although the Erie Canal connected Lake Erie to the port of New York by , water routes that connected local interior ports throughout northern Ohio to the Canal were not operational prior to the mids. Indeed, initially the Erie aided the development of the Old Northwest, not because it facilitated eastward grain shipments, but rather because it allowed immigrants and manufactured goods easy access to the West Clark , By the mouths of rivers and streams throughout the East North Central States had become the hubs, or port cities, from which farmers shipped grain east via the Erie.

By this time, shippers could also opt to go south on the Ohio River and then upriver to Pittsburgh and ultimately to Philadelphia, or north on the Ohio Canal to Cleveland, Buffalo and ultimately, via the Welland Canal, to Lake Ontario and Montreal By shippers carried more grain north on the Great Lakes and through Buffalo, than south on the Mississippi through New Orleans Odle , Illinois, Indiana, Michigan, and the region of modern day Wisconsin either produced for their respective local markets or relied upon Southern demand.

Before the mids, a network of banks, grain dealers, merchants, millers and commission houses — buying and selling agents located in the central commodity markets — employed an acceptance system to finance the U. The merchant extended this line of credit in the form of sight drafts, which the merchant made payable, in sixty or ninety days, up to the amount of the line of credit. With this credit line established, commission agents in the hinterland would arrange with grain dealers to acquire the necessary grain.

The commission agents would use these banknotes to advance — lend — grain dealers roughly three quarters of the current market value of the grain. The commission agent would pay dealers the remainder minus finance and commission fees when the grain was finally sold in the East.

That is, commission agents and grain dealers entered into consignment contracts. The system was reasonably adequate if grain prices went unchanged between the time the miller procured the credit and the time the grain bulk or converted was sold in the East, but this was rarely the case. The fundamental problem with this system of finance was that commission agents were effectively asking banks to lend them money to purchase as yet unsold grain.

To be sure, this inadequacy was most apparent during financial panics, when many banks refused to discount these drafts Odle , The canal enabled farmers in the hinterlands along the Illinois River to ship their produce to merchants located along the river. These merchants accumulated, stored and then shipped grain to Chicago, Milwaukee and Racine.

At first, shippers tagged deliverables according to producer and region, while purchasers inspected and chose these tagged bundles upon delivery. Commercial activity at the three grain ports grew throughout the s.

Chicago emerged as a dominant grain primarily corn hub later that decade Pierce , Amidst this growth of Lake Michigan commerce, a confluence of innovations transformed the grain trade and its method of finance. By the s, grain elevators and railroads facilitated high volume grain storage and shipment, respectively. Consequently, country merchants and their Chicago counterparts required greater financing in order to store and ship this higher volume of grain.

For example, because a bushel of grade No. Merchants could secure these larger loans more easily and at relatively lower rates if they obtained firm price and quantity commitments from their buyers.

So, merchants began to engage in forward not futures contracts. It specified that 3, bushels of corn were to be delivered to Chicago in June at a price of one cent below the March 13 th cash market price In the s and s these exchanges emerged as associations for dealing with local issues such as harbor infrastructure and commercial arbitration e.

By the s they established a system of staple grades, standards and inspections, all of which rendered inventory grain fungible Baer and Saxon , 10; Chandler , As collection points for grain, cotton, and provisions, they weighed, inspected and classified commodity shipments that passed from west to east.

They also facilitated organized trading in spot and forward markets Chandler , ; Odle , The largest and most prominent of these exchanges was the Board of Trade of the City of Chicago, a grain and provisions exchange established in by a State of Illinois corporate charter Boyle , 38; Lurie , 27 ; the exchange is known today as the Chicago Board of Trade CBT.

For at least its first decade, the CBT functioned as a meeting place for merchants to resolve contract disputes and discuss commercial matters of mutual concern. Participation was part-time at best. However, in the CBT became a state- of Illinois chartered private association. By the s traders sold and resold forward contracts prior to actual delivery Hieronymus , A trader could not offset, in the futures market sense of the term, a forward contact. Nonetheless, the existence of a secondary market — market for extant, as opposed to newly issued securities — in forward contracts suggests, if nothing else, speculators were active in these early time contracts.

On March 27, , the Chicago Board of Trade adopted its first rules and procedures for trade in forwards on the exchange Hieronymus , The rules addressed contract settlement, which was and still is the fundamental challenge associated with a forward contract — finding a trader who was willing to take a position in a forward contract was relatively easy to do; finding that trader at the time of contract settlement was not.

The CBT began to transform actively traded and reasonably homogeneous forward contracts into futures contracts in May, At this time, the CBT: The inception of organized futures trading is difficult to date. This is due, in part, to semantic ambiguities — e. However, most grain trade historians agree that storage grain elevators , shipment railroad , and communication telegraph technologies, a system of staple grades and standards, and the impetus to speculation provided by the Crimean and U.

Nonetheless, futures exchanges in the mids lacked modern clearinghouses, with which most exchanges began to experiment only in the mids. The earliest formal clearing and offset procedures were established by the Minneapolis Grain Exchange in Peck , 6. Even so, rudiments of a clearing system — one that freed traders from dealing directly with one another — were in place by the s Hoffman , Catalist companies with high revenue and earning SI Super 5TG.

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