Highlights

Bursa Derivatives Education Series

Author: bursaderivatives   |   Latest post: Mon, 31 Aug 2020, 10:12 PM

 

What other products do we offer?

Author: bursaderivatives   |  Publish date: Mon, 31 Aug 2020, 10:12 PM


Equity Derivatives

  • FTSE Bursa Malaysia KLCI Futures (FKLI)
  • Options on FTSE Bursa Malaysia KLCI Futures (OKLI)
  • Single Stock Futures (SSFs)
  • FTSE Bursa Malaysia Mid 70 Index Futures (FM70)

 

Financial Derivatives

  • 3-Month KL Interbank Offered Rate (KLIBOR) Futures(FKB3)
  • 3-Year Malaysian Government Securities Futures (FMG3)
  • 5-Year Malaysian Government Securities Futures (FMG5)
  • 10-Year Malaysian Government Securities Futures (FMG10)

 

Commodity Derivatives

  • Gold Futures (FGLD)
  • USD Tin Futures (FTIN)
  • Crude Palm Oil Futures (FCPO)
  • Options on Crude Palm Oil Futures (OCPO)
  • USD RBD Palm Olein Futures (FPOL)
  • USD Crude Palm Oil Futures (FUPO)
  • Crude Palm Kernel Oil Futures (FPKO)

 

List of products offered as at January 2019. Please refer to the full list of products offered at www.bursamalaysia.com

 

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What other facilities are available?

Author: bursaderivatives   |  Publish date: Mon, 31 Aug 2020, 10:12 PM


Exchange for Related Positions (EFRP)

EFRP refers to an arrangement between 2 parties whereby a futures position is exchanged for related positions or vice versa. The related position can include cash or physical, swap, OTC derivative or other futures position.

The related position must involve the commodity or a financial asset underlying the futures contract, or must be a derivative, by-product or related product that has a reasonable degree of price correlation to the commodity or financial asset underlying the futures contract.

Negotiated Large Trade (NLT)

NLT is an off-market trading facility that allows Trading Participants or their clients to arrange and transact orders of a defined large size away from the trading system. NLT allows large trades to be done at a single price and it minimises the possible price impact and time delays that may occur when transacting orders of large sizes on the Exchange.

 

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Trading Scenarios of Derivatives

Author: bursaderivatives   |  Publish date: Mon, 31 Aug 2020, 10:11 PM


Scenario 1 – Benefi‚Äčt from Bear Markets

On concerns of higher prices of consumer goods and an overall decline of economic conditions, Sofea views that market will be on a decline. To make profit out of the bear market, she can use the FKLI contract in the following manner:

Index Futures (FKLI) is trading at 1780.0

Scenario: FKLI is expected to FALL

Step 1: Sell one FKLI contract at 1780.0

 

Assuming FKLI declines to 1760.0

Step 2: Buy one FKLI contract at 1760.0

Gross profit on FKLI: MYR 1000 (MYR 50 x 20 points)

 

Scenario 2 – Benefit from Bull Markets

Ryan has been watching the stock market very closely due to the upcoming General Elections. He foresees that the market will be on an uptrend after the election. To profit out of the bull market, he can use the FKLI contract in the following manner:

 

Index Futures (FKLI) is trading at 1780.0

Scenario: FKLI is expected to RISE

Step 1: Buy one FKLI contract at 1780.0

 

Assuming FKLI rises to 1790.0

Step 2: Sell one FKLI contract at 1790.0

Gross profit on FKLI: MYR 500 (MYR 50 x 10 points)

 

Note:

(i) Initial Margin is to be deposited with a Futures Broker prior to trading.

(ii) Open position is subject to daily mark-to-market which may require additional margin to be deposited.

(iii) Transaction costs have been excluded in this example.

 

Scenario 3 – Hedging

A position established in one market in an attempt to offset exposure to price fluctuations in the opposite position in another market with the goal of minimizing one’s exposure to unwanted risk.

Fund managers perpetually hold stocks in hand, therefore their risk exposure to the market would be enhanced in declining markets. A fund manager expects that in two months’ time, the share price will appreciate. However, he is worried that unforeseen event may cause prices to decline prior to the time he would sell his stocks. He chooses to trade on BMD and hedge his position by selling the forward FKLI contract. In doing so, he has effectively agreed to lock-in his future selling price today for a contract that will expire in two months’ time.

 

Scenario 4 – Arbitraging

When derivatives are trading above or below their theoretical “fair value,” it is possible to undertake arbitrage strategies by buying or selling the derivatives and simultaneously selling or purchasing the underlying stock(s).

The fund manager realises that the correlation prices of the cash market and the FKLI market have deviated from their usual spreads, and that the FKLI is trading at a premium to the cash market. It decides to sell FKLI and buy the underlying shares in the equity market to arbitrage. The position will be liquidated later once the spread of the prices between both markets return to its fair value.

 

Scenario 5 – Trading

Observation of trading patterns and post data on reactions to market announcements provide an estimate on possible bullish or bearish trends.

The fund manager expects a spike up in prices in anticipation of an increase in buying activities by foreign funds based on the positive economic data of the country. It naturally will increase its exposure and may purchase stocks and FKLI simultaneously to maximize its ‘buy / long’ portfolio position.

 

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Margins and Approved Currencies

Author: bursaderivatives   |  Publish date: Mon, 31 Aug 2020, 10:11 PM


Initial Margin is to be deposited with your licensed Futures Broker prior to trading. All currency deposits for Initial Margin are subjected to hair cut rates as determined by Bursa Malaysia Derivatives Clearing from time to time.

While Variation Margins are in Ringgit Malaysia (MYR), Initial Margins are accepted in various currencies listed below:

  • Malaysian Ringgit (MYR)
  • US Dollar (USD)
  • British Pound (GBP)
  • Euro (EUR)
  • Hong Kong Dollar (HKD)
  • Japanese Yen (JPY)
  • Chinese Renminbi (RMB)
  • Singapore Dollar (SGD)
  • Australian Dollar (AUD)

Please refer to your Futures Broker for other approved collaterals.

 

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Why Trade FKLI?

Author: bursaderivatives   |  Publish date: Mon, 31 Aug 2020, 10:10 PM


1. Global Access

FKLI is traded electronically on CME GLOBEX®, a global electronic trading platform. Accessing CME GLOBEX® is easy and allows individual and professional traders anywhere around the world to access all Bursa Malaysia Derivatives’ products.

 

2. Prudent capital management

An insurance company or fund manager with an equity portfolio will sell the FKLI as a hedge to protect itself against a potential decline in the equity portfolio value.

 

3. Maximise volatility trading

Traders may use the FKLI to gain leveraged exposure arising from price volatility in the underlying FBM KLCI index.

 

4. Lower cost of entry

An institution, which is in a tight cash flow situation and is unable to obtain the physical stocks now, may buy the FKLI as a temporary substitute for holding stocks until it has the available funds. The FKLI position would be liquidated later once the stocks are acquired. This method entails a cheaper entry (via only initial margin deposits) with similar exposure to the value of the underlying stocks MINUS the cost of an outright purchase.

 

5. Ability to short sell

Trading the FKLI allows you to sell first and purchase later to close out your trading positions.

 

Get Started to Trade Derivatives Now!

Step 1

Open a Futures Trading Account with a licensed Futures Broker of Bursa Malaysia Derivatives.

Step 2

Deposit the Initial Margin with your Futures Broker.

Step 3

Start trading FKLI.

 

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Derivatives 101

Author: bursaderivatives   |  Publish date: Mon, 31 Aug 2020, 10:10 PM


Q1: What are Derivatives?

Derivatives are financial instruments used to manage one’s exposure in today’s volatile markets. A derivative product’s value depends upon and is derived from an underlying instrument, such as commodities, interest rates, indices or stocks.

In other words, a derivative is a financial contract with a value linked to the expected future price movements of an underlying asset.

It is used as a tool for price discovery, hedging, speculating and arbitraging.

 

Q2: What are futures and options?

Futures and options are derivative products mostly traded on exchanges. A futures contract is an agreement between two parties to buy or sell the underlying instrument at a specific time in the future at a specific price determined today.

An option however, provides the holder/buyer the right but not the obligation, to purchase or sell a certain quantity of the underlying instrument at a stipulated price within a specific time period by paying a premium.

 

Q3: What is FKLI?

FKLI is a Ringgit Malaysia (“MYR”) denominated FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) Futures contract traded on Bursa Malaysia

Derivatives providing market participants exposure to the underlying FBM KLCI constituents.

It is actively used by both the institutional and retail investors in their respective trading portfolios.

Contract Size: FBM KLCI multiplied by MYR50.

Settlement: Cash Settlement in MYR

 

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3. Derivatives 101 Bursa Derivatives Education Series
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