Remerciez-le!

Remerciez @Admin pour avoir partagé cet document gratuitement, de la manière la plus simple, en partageant sur les réseaux sociaux.

OSK GUIDE TO TRADING FUTURES. Introduction to Trading Futures. 1 Welcome to the

OSK GUIDE TO TRADING FUTURES. Introduction to Trading Futures. 1 Welcome to the exciting world of Futures. This booklet serves as an introductory guide for those wishing to start trading futures contracts. What are Futures Contracts? A futures contract is an agreement between buyer and seller of an underlying commodity / financial instrument / asset at a price set today for delivery in the future. They are standardised contracts traded on Exchanges around the world. Example: The History of the Futures market Forward contracts, a predecessor of futures trading, originated as early as ancient Greece, where merchants traded contracts for olive produce. In Japan, during the 17th Century, there existed the Dojima Rice Market in Osaka which was probably the earliest version of the modern day organised futures exchanges. The 19th century saw standardised grain futures contracts being traded on the Chicago Board Of Trade (CBOT). Currently, futures contracts are traded on more than 80 Exchanges all around the world with diverse contracts such as indices, interest rates, energy and metals, besides the traditional agricultural commodities. Who are the players? Participants in the futures market can be chiefly divided into two groups depending on the rationale behind trading the market. The first group comprises Hedgers; these are mainly corporations, businesses or individuals who enter the futures markets to remove or hedge their price risk. These are people normally holding the underlying commodity or asset. For example, producers of crude palm oil or gold; asset managers who hold equity portfolios; and banks with loan portfolios. Their main rationale in using the futures market is to reduce or eliminate price risk. The second group comprises Speculators; these are institutions or individuals whose main rationale is to profit from movements in the prices of futures contracts. They are largely bank proprietary or treasury desks, hedge funds, arbitrageurs and individual traders. Speculators assume the risk that Hedgers seek to offset, with a view to profit from it. Underlying Commodity/Asset Futures Contract Exchange Crude Palm Oil Crude Palm Oil Futures Bursa Malaysia Derivatives (BMD) Gold Gold Futures Chicago Mercantile Exchange (CME) Hang Seng Index Hang Seng Index Futures Hong Kong Exchange (HKeX) 2 Structure of the Futures Market. Different bodies or participants make up the structure of a futures market and this usually comprises the following:  The Exchange  The Clearing House  Regulators  Brokers The Clearing House The Clearing House plays the critical role as the counterparties to all buyers and sellers in a futures market. The Clearing House, in effect, acts to guarantee the performance of all futures contracts in the market. In order to do that, buyers and sellers of futures contracts are required to put up sufficient deposits, called margin, to back the position that they have in the market. Regulators The role of the regulating authority is to supervise the Exchange, the Clearing House as well as the Brokers. The Regulator also has investigative as well as enforcement powers to ensure compliance to the Rules and governing laws in order to maintain fair and orderly markets. In most jurisdictions it is the role of the Regulator to conduct licensing for the intermediaries in the market as well. Ultimately, the role of the Regulator is to ensure investor’s interests are protected. In Malaysia, the regulating body for the futures market is the Securities Commission of Malaysia. Brokers Brokers act as intermediaries to provide their clients, who may be both hedgers and speculators, access to the Exchange to buy or sell futures contracts. Brokers charge brokerage commissions for the execution services as well as other services which may include advice, voice or online trading platforms, market research or analysis. In most countries, brokers and their representatives are required to be licensed before they can offer their services to clients. In Malaysia, all Futures brokers and representatives are required to pass licensing examinations and obtain a license to deal with clients. The Exchange The Exchange aims to provide an efficient, transparent and orderly trading environment where futures contracts are bought and sold. The Exchange creates and designs the standardised futures contracts and offers them to the market for trading. 3 The futures market has many distinct advantages for investors and traders. Here are the main advantages of trading futures: Leverage Leverage enables an investor to hold a larger sized investment using a smaller capital outlay. This is an inherent feature of the futures market as brokers and the clearing house require the investor to put up a margin deposit which is always much less than the notional value of the futures contract. For example, in order to trade one contract of Bursa Malaysia FTSE Kuala Lumpur Index Futures (FKLI) contract, one would need to put a margin deposit of, say, RM4,000. The notional value of a FKLI contract is valued at RM50 multiplied by the Kuala Lumpur Index. If an investor bought one FKLI contract at 1,600, he would, in notional terms, have bought RM50 x 1,600, or RM80,000 worth of Kuala Lumpur Index Stocks. Essentially with a deposit of RM4,000 he now holds RM80,000 worth of stock. He is said to have employed RM80,000 / 4,000 or 20x leverage for his position. If the Kuala Lumpur Index rises by 10%, the investor would stand to gain RM8,000 or 200% on his initial deposit. The 20x leverage enables him to realise a 200% gain rather than just 10% if he had put up RM80,000 to buy the same stocks. That is the power of leverage. Liquidity Liquidity is how actively a particular futures contract is trading in terms of volume and frequency. The more liquid the futures contract is, the more buyers and sellers are in the market to transact. It is very important to trade liquid contracts too, as they enable the investor to easily enter and exit the market. A very liquid futures contract also allows an investor to trade larger positions knowing that he can choose to exit the market at any time. Why trade the Futures Market? 4 The global futures market offer a multitude of different contracts all going through bear or bull cycles with abundance of trading opportunities. Low Transaction Costs Futures contracts are relatively cheaper to trade than the underlying commodity of financial instruments. Diversification to Alternative Investment Adding alternative investments into your portfolio can help to reduce your portfolio volatility as well as enhance your portfolio returns. Studies have shown that investments into alternative investment products especially ones that are non-correlated to traditional bond and equity markets tend to give that effect. Futures, especially commodity futures, are pure alternative instruments that can help you achieve this diversification. Why trade the Futures market? Volatility The more volatile a particular futures contract, the greater the possibility for profitable trading opportunities. The futures market has strong price moves and this volatility create many opportunities for investors to profit. Trade Bull and Bear markets The futures market allows an investor to take a bullish view of the market as well a bearish position. Unlike, say a pure equity investor, who can only profit from a rising stock market, a futures investor can make money when stocks are rising as well as falling. 5 How it works? These daily profit and loss movements in margins are referred to as variation margin. Margin Calls Margin calls occur when the variation margin losses reduce the trading account balance to the point that they are below the margin required by the Clearing House. In this case, the broker will inform the client of the margin call. The client can then choose to add more funds into the account, reduce his position or liquidate the position entirely. Example of Margin Calculations: Say a client bought a position of 10 contracts in CME Gold Futures Contract. If the initial margin of Gold Futures is US$10,000, the client has to have a minimum of US$100,000 for his 10 contracts. Assuming if gold prices dropped on the same day and the client’s loss was US$25,000, his account balance would be reduced to US$75,000. Opening a Trading Account In order to start trading futures you need to open a futures trading account with a broker. You are normally required to sign a Risk Disclosure Statement to declare that you are aware of the potential loss in trading futures. The trading account documents will set out the terms and conditions for trading including brokerage commission charges and well as other services provided. Initial Margin After the trading account is approved, you would be required to put up an initial margin deposit into your trading account in order to be able to start trading. The minimum initial margin is usually determined by your broker. The initial margin deposited will determine how many futures contracts you can trade. Margins per contract are determined by the Clearing House but may differ depending on your broker. The Clearing House normally determines margins according to the risk and volatility of a particular futures contract. Variation Margin Daily movements in the pricing of uploads/Finance/ futures-trading-guide.pdf