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With the global derivatives market projected to reach $39.17 billion by 2027, up from $21.98 billion in 2020, with a compounded annual growth rate of 8.6 percent, the Nigerian Exchange Group (NGX) has demonstrated its unwavering commitment to the Nigerian capital market’s participation in this growth by announcing the introduction of its Single Stock Futures (SSF).
Jude Chiemeka, the Executive Director of Capital Markets at NGX, announced this during a one-day workshop/webinar titled “Uncovering Trading Opportunities in NGX Single Stock Futures,” hosted by the exchange on Tuesday. He emphasized the importance of NGX’s efforts to diversify the Nigerian Capital Market and encouraged investors to leverage the opportunities presented by the Exchange-Traded Derivatives (ETDs) market to strengthen their investment portfolios.
According to Chiemeka, the International Swaps and Derivatives Association (ISDA) reported that over 90 percent of the world’s 500 largest companies across 26 countries strategically employ derivatives to mitigate risks. “This financial instrument has become integral in today’s dynamic financial and trade markets, offering not only risk protection but also serving as a catalyst for the development of a resilient, liquid capital market, which in turn boosts our economic growth,” He explained.
He also highlighted, “The World Federation of Exchanges’ 2020 derivatives report reveals that the number of exchange-traded derivatives contracts, encompassing both options and futures, recently reached its highest level in six years, totaling an impressive 84.76 billion derivatives contracts traded; 56.17 billion for options and 29.59 billion for futures. This represents a remarkable 34.4 per cent increase when compared to 2021.”
NGX took a pivotal step in the financial industry when it launched West Africa’s first exchange-traded derivatives market in April 2022. This launch began with equity index futures contracts based on the highly esteemed NGX-30 index and the NGX-pension index. The initiative aimed to diversify investment avenues, enable efficient risk management, and facilitate investment strategies across various assets and financial instruments.
Highlighting the progress since its April 2022 launch and the addition of Single Stock Futures, Chiemeka noted the need for more enlightenment to encourage new and existing investors. He stated that the webinar was designed not only to deepen the understanding of Single Stock Futures but also to inform market stakeholders about NGX’s efforts in capacity building and investor education in the development of this asset class, while presenting them with practical applications in investments.”
The CEO of Page Investment Managers Limited, Olumide Odediran during a live presentation of how the (SSF) derivatives works highlighted its benefits to include serving as an effective hedging tool, allowing investors to protect themselves from potential losses in individual stocks, enabling traders to control larger positions with a smaller initial investment, potentially amplifying gains, facilitate diversification by allowing investors to gain exposure to specific stocks without owning them outright, tendency to be more liquid than the underlying stocks among other benefits.
Odediran however noted that they come with risks, including leverage-related losses and market volatility.
