Derivatives Market on the Rise: ICDX Highlights Three Key Catalysts

JAKARTA, investortrust.id – The Indonesia Commodity and Derivatives Exchange (ICDX) has identified three key catalysts fueling the growth of the country’s derivatives market: regulatory frameworks, product development, and the rise of digital brokers.

CEO of Indonesia Clearing House (ICH) Megain Widjaja emphasized that regulations play a crucial role in shaping the market. Additionally, the continuous development of derivative products, each governed by respective regulators, has strengthened market stability and investor confidence.

"The third and most exciting factor is market disruption driven by new digital-centric brokers. These brokers are highly aggressive in acquiring clients through digital platforms. We see great potential in collaborating with them as they demonstrate rapid learning capabilities," Megain stated during a media visit to Investortrust's office at The Convergence Indonesia, Jakarta, on Friday, Feb. 28, 2025.

According to Megain, these three catalysts will significantly transform the market, supporting ICDX’s mission to modernize Indonesia’s financial sector. To achieve this, the exchange is focusing on product innovation, technology enhancement, and the development of robust trading infrastructure. Additionally, ICDX is intensifying efforts to educate the public, particularly younger investors, about derivatives trading.

In benchmarking Indonesia’s derivatives market, Megain pointed to Singapore and Thailand as strong regional models. However, he noted that the highest global benchmark remains the Chicago Mercantile Exchange (CME) in the United States.

"CME is our ultimate benchmark because it offers multi-asset, multi-underlying, and multi-regulatory trading, with an exceptionally deep and liquid derivatives market," he added.

Growing Market and Economic Impact

Data from Indonesia’s Financial Services Authority (OJK) shows that Thailand’s derivatives market holds a 16% share, Malaysia’s market stands at 15%, while Singapore leads with 27%. The growing presence of derivative products in Indonesia is expected to contribute to national economic growth.

In recent years, derivatives have gained increasing attention among investors as a viable financial instrument. The market’s growth is also driven by broader awareness of derivatives’ potential as an investment tool.

In financial markets, derivatives are investment instruments whose value is derived from an underlying asset. A derivative contract represents a financial agreement between two or more parties to buy or sell an asset or commodity at a predetermined price and time. The future value of the traded asset is largely influenced by its corresponding spot market price.

With a wide range of assets eligible for derivative contracts—including commodities, currencies, indices, bonds, and equities—derivatives serve as essential instruments in modern financial systems.

Strategic Role of Derivatives

Derivatives play a crucial role in financial markets for several reasons:

1. Risk Management: Investors use derivatives to hedge against price volatility and mitigate financial risks.
2. Market Liquidity: The presence of derivatives deepens financial markets, enhancing liquidity and trading efficiency.
3. Lower Transaction Costs: Markets that incorporate derivatives tend to have lower transaction costs, as bid-ask spreads become narrower.
4. Price Discovery: Derivatives facilitate the price discovery process, helping market participants determine the fair value of assets.

As Indonesia continues to develop its financial market infrastructure, the growing adoption of derivatives is expected to enhance market efficiency, attract investors, and bolster economic growth.