By Jianfei Leng, Qiaoyun Ye, and Guorong Jia
China Securities Regulatory Commission announced the “Futures Company asset management business pilot measures” on July 31, 2012, it means that the innovation business has become an important breakthrough in China’s Futures Company to change the current situation. Futures Company proprietary business is the most can manifest the value of their own business and create core competitiveness in all innovation business of Futures Company. And at the same time, the risk Futures Company proprietary business faces is also the biggest.
In the process of rapid development in Futures Company, it will inevitably enter the field of innovation business, especially the self-operated business that may bring greater benefits for the futures company. Even it can participate in the international market futures proprietary business in the future. It is a relatively new research topic on how to grasp the historical opportunity and control the risk in the smallest range at the current futures industry.
The risk of proprietary business in Futures Companies refers to the extent of the damage or the possibility of not arriving at the expected rate of return when they engaged in self-operated business investment.
Figure 1. The basic process of risk management
According to the experience of proprietary business risk control in foreign Futures Companies, we summarized the main characteristics of risk as follows:
The risk factors of the futures market objectively exist, triggering risk accidents through its accumulation in time and quantity and thus affecting the price fluctuation of the futures market, which caused a deviation between the actual return and expected return of investors. So, the risk of future investment objectively exists, and it does not transfer with a subject will.
The major different between futures investment and general merchandise market is that the futures investment consists of investors and speculators. In the daily operation of futures investment, hedging and speculation are concomitant and are difficult to distinguish their boundaries, in some cases, they can be transformed. Speculative capital is mainly used to win the profit of price margin through short-term price fluctuation, so when the speculation turned to excessive speculation or even crazy speculation, there are still market risks, especially in the futures market where leverage effect is strong, the price would be more sensitive.
Futures investment faced with the vast number of direct investors, the distribution is wide. Therefore, futures investment is linked to the interests of thousands of households, once the market risk occurred, it can easily lead to social problems. It brings excessive speculation when the market price fluctuates violently. Investors tend to suffer heavy losses when chasing a large quilt. In addition, with the further expansion of the inherent risks in the futures market, it will lead to financial and economic crisis, causing serious damage to the country’s society, economic, and political stability.
Risk factors in the futures market are not controllable by the future investment itself. In addition, various nonstandard and illegal behaviors emerge in an endless stream due to the limitation of market supervision ability and industry self-discipline. There is still a certain time lag finding, punishing and correcting these illegal behaviors, which further increasing the difficulty of market risk control.
The commodity futures is sensitive to various policies, information such as economic conditions, political situation, science and technology, and the producing of these factors is uncertain, the risk of futures investment is also uncertain, thus the outburst of the risk is very strong.
About the Authors:
Jianfei Leng, Management School, Fudan University, Shanghai, China
Qiaoyun Ye and Guorong Jia , Business School, Hohai University, Nanjing, China
Technology and Investment Vol.06 No.02(2015), Article ID:56157,7 pages: 10.4236/ti.2015.62012 Title: Research on Self-Operated Business Risk Control of Futures Company
Copyright © 2015 by authors and Scientific Research Publishing Inc.
This work is licensed under the Creative Commons Attribution International License (CC BY).http://creativecommons.org/licenses/by/4.0/