A Framework for Forward and Future Market in Bangladesh
1.0 Introduction about Derivative Market:
Derivatives are an Instruments or Products which do not have any value on its own but derives its value from underlying assets. The underlining assets can be a stock, bonds, commodities, interest rate, exchange rates or stock or other market indices, rainfall, temperature etc. Derivatives are leveraged products. Derivatives can be traded under Forward Contract, future contract and Options.
In Bangladesh there is no Future and Forward Market yet. But there is enormous opportunity for Future and Forward Market. There are actually three types of investors exist in the Future and Forward Market. Speculators, take position to gain from the expected fluctuation in the price of future contracts over time. Hedgers, take position to reduce their probability of movements of interest rate or stock price in future. And Arbitragers, who makes profit from short term price fluctuations. Future and Forward Market is an organized market place where financial futures contracts are traded. These market places clear, settle and guarantee all transactions that occur on their exchanges.
2.0 Prospects and Advantages of Future and Forward Market in Bangladesh from Different Stakeholders View Points:
2.1 From the Authority’s (SEC) Point of View:
As we know in Bangladesh SEC (Security Exchange Commission) is the authority under which a Future and Forward Market will establish and taken care off. As per SEC’s view point they said that today the complete focus of individual investors, institutions and corporations are on Stock Exchange. This put a limitation for different investors to choose investment options. If there is any Future and Forward Market beside Stock Exchange it can provide an option for the investors to get away from incurring losses. Our economy is an emerging economy and still growing. As the economy will grow the soon there will be Future and Forward Market.
2.2 From the Investors point of View:
As it has been said earlier that, the investors are willing to have more options for their investment. Future and Forward Market can be the solution for them. Different aspects regarding this matter discussed bellow,
• Like any one (investor) who invested both in stock exchange and an index market of securities. Its an Hedging based on index. So, now the investor may incur loss in share market but he can gain in the hedging for that product market.
• Countries which have unstable economical condition like Bangladesh Forward and Future contract can be useful. Because of unstable economy price fluctuation is common in our country. Future and Forward Market can reduce problems arise due to unpredictable price condition.
• Future and Forward Market is a place for all kind of investors. Those, who want to take risk (Speculators), who want to avoid risks (Hedgers) and who want to utilize short term price fluctuations (Arbitragers).
2.3 From the Macro Economical Point of View for Bangladesh:
Mostly investments are based on the Stock Exchange and due to this; it become a very sensitive sector. Fall of which can create economical disaster. And that is why there should be parallel market which can also help the economy to get heal if there any economical catastrophe especially because of Stock Market.
In order to allow the economy to grow it is essential to spread out different branches to create new investment opportunities. Stock markets and other derivatives market of any country is one kind of indicator which tells the strength of that country’s economy. It also desired for Bangladesh. As the economy is going beside stock exchange the country will also looking for other investment opportunities. This will leads the concept of establishing a Future and Forward Market in Bangladesh.
3.0 The Drawbacks to Establish Future and Forward Market in Bangladesh:
Starting something for the first time is always needed to face and overcome some obstacles. In order to establish a Future and Forward Market in Bangladesh we need some logistic supports.
Firstly, we need lots of professionals who can design and control the market. We know this is a very new concept for almost all of the people of our country. Because there is no such market in Bangladesh and due to this there is a few numbers of professionals and expertise in here. Lesser number of graduates we are having regarding this subject from our universities and institutions who can work for this kind of project. Lesser number of researchers we are having in our country. In order to establish a Future and Forward Market we need to hire professionals and expert people from the overseas countries and which is expensive.
Secondly, in our country investors are not that much educated who can understand Future and Forward Market scenarios and activities. It will take time to get educated or understand the market. At this time a group of people might want to enjoy extra benefit which is unwanted.
Thirdly, for a Future and Forward Market we need huge number of investors which we are currently lacking off. As a developing nation we do not have enough investors who are having bulk amount of monetary reserve. Whereas a Future and Forward Market needs a strong number of investors whose investment will run as blood of the market and keep it alive.
Another thing is that when the investors are doing their business in the Future and Forward Market they are ensure by the market about the quality of their underlining product. Where in Bangladesh there is some risk in this kind of matter or activities. Last but not the least, the political instability is another big issue for this kind business. Problems arise due to Political instability can be a drawback for Future and Forward Market. There are many agricultural assets which might get unusable if it kept for longer time or might the cost increases due to long time preservation or stock.
We are developing nation and our economy is growing day by day in order to compete with the world emerging economy. As a part of development we are expecting Future and Forward Market to enter in our economy as well as country. We surely benefited form it, if we can properly manage it. We can have our minerals like Natural Gas can be an underlining asset. We can easily reduce the price fluctuation mainly price increase in the daily goods like rice and other agricultural goods. For the wellbeing of the economy we need to establish our Future and Forward Market in the country.