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This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561

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In Malaysia, the Kuala Lumpur Options and Financial Futures Exchange Berhad (KLOFFE) and Malaysia Monetary Exchange Berhad (MME) are the two exchanges that offer trading of financial futures and options.

Equity swaps which allow the portfolio managers to invest in a market without having to actually go or even send the money there effectively cut costs and enhance returns for their shareholders.

Derivatives have brought major impact to the global financial markets over the years but are derivatives actually that risky as claimed? The answer can be both yes and no.

Derivatives such as the options and futures markets are commonly used by investors (hedgers) to hedge against unpredictable market uncertainties. But there are investors (speculators) who try to make quick money by speculating in the derivative markets.

Investors who do not possess adequate investment skills should not attempt to speculate in
the derivative markets as the risks can be substantial if not properly managed. Speculating in the investment arena involves a higher level of risk not only with the derivative products.

Meanwhile, the collapse of Barings and Nomura should not be a true reflection of the derivatives industry as the cases were special. It was due to the banks ineffective management and uncontrollable trading.

The local derivatives market on the other hand is expected to grow more encouragingly over the next few years. At present, lack of expertise apart from lack of benchmark and liquidity are seen as stumbling blocks.

The positive development for the local derivatives market is critical as it ensures the local market competitiveness on the global map. Intensive staff training at the early stages and the implementation of the risk management along side the futher deregulation of the local financial system should be the foundations of growing the local derivatives market.

Obviously, the uneducated and conservative local investors should be more responsive to the global changes. In Malaysia where the marketplace is at infant stage, Normandy would like to advise our readers to learn more about derivative products and not to use them as tools to hunt for quick profits.

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Reproduced with permission from Normandy Services Sdn Bhd, Tel:603-4695560 Fax:603-2945561