What is Futures trading?A futures contract is an agreement to buy or sell a specified amount of a commodity at the specified price on a specified future date. A commodity can be tangibles such as gold, crude oil, grains, livestocks, oil seeds, etc. or intangibles such as stock indices, currencies, and interest rates.
What is a Stock Index Futures contract?A Stock Index Futures contract is a legal binding agreement between two parties to buy and sell the underlying index, at a price agreed upon today, at a future delivery date. Unlike the commodity futures, the Stock Index Futures are settled in cash because it is impractical to physically deliver the underlying index at expiration.
What can the Stock Index Futures do for you?Stock Index Futures are highly flexible risk management tools because of their liquidity, small bid-ask spreads, low transaction costs, ease of adjusting position and ability to move funds quickly into and out of an investment. They also serve as short-term substitutes for positions in the underlying stock markets.
With Stock Index Futures, you can eliminate, acquire or adjust exposure to overall stock market fluctuations in a cost-effective manner.
What are the differences between stock ownership and stock index futures?
Transaction Stock Ownership Stock Index Futures To create a portfolio Requires a substantial amount of capital outlay to build a large enough portfolio in order to obtain diversification benefits Each single contract consists of all component stocks in its composition. Behaves like a portfolio, thus diversifying risks Dealing with Lquidity Requires careful selection of active and profitable stocks All round liquidity in all composite stocks is achieved which allows investors to participate in gains of illiquid stocks Short Selling There are rules restricting short selling and the borrowing of scripts for delivery. This may not be cheap or easy. If you have a bearish sentiment of the market, you may profit from it by selling the Stock Index Futures. Leveraging Most investors buy stock on a full paid basis. For those who trade on margin, asset backing may be between 10% and 50% of the total stock holdings. A nominal margin deposit allows you to control stocks worth as much as 40 times the value. Therefore, your money works harder for you. Execution Cost A bid-offer spread and commission to broker constitutes transaction costs of 0.2% to 0.5%, depending on the price of the stock. Buying and selling a Stock Index Futures contract is based on a simple concept. As such, you would pay lower transaction costs of less than 0.5%.
What are the trading hours of the various contracts traded?You may refer to contract specifications for details .
How can trading in Stock Index Futures benefit me?By trading Stock Index Futures, you can easily participate in the various equity markets without having to trade individual cash stocks. You may buy or sell first to initiate a position, depending on market conditions and on whether your view of the overall market sentiment is bullish or bearish.
What should I do to place my orders?You may trade electronically via one of our online trading platforms or call our 24-hour Dealing desks.
What is a Currency Futures contract?A currency futures contract is a futures contract based on the underlying currency against the USD traded on the Chicago Mercantile Exchange (CME) for close to 24 hours a day.
What can the Currency Futures do for you?Also known as foreign exchange, FOREX, or simply FX, the currency market is the world’s largest, most liquid financial market. Financial institutions, investment managers, corporations and individual investors trade currency futures to manage risks and capture potential opportunities associated with currency rate fluctuations.
What are the Currency Futures contracts available?Some of the more popular currency contracts that are traded at CME through KGI Ong Capital are the Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar, New Zealand Dollar and the Australian Dollar.
What are Interest Rate FuturesInterest rates can be loosely defined as the price of money and are determined by the market forces of supply and demand. They influence personal and commercial activities, such as the cost of a home mortgage, the charge applied to a credit card balance or the interest received on a savings account. Interest rate futures offer investors an advantageous means to protect their interest rate related assets and liabilities from the impact of volatility by locking in interest rates in advance. It also provides traders the means to profit from the accuracy of their market views on interest rate movements and their evaluations of interest rate pricing.
The MSCI Singapore Index Futures ( SiMSCI ) – An Example
You are bullish on the Singapore stock market and wish to participate in it. You have traded stocks before but you find that picking a profitable stock is difficult and time consuming. The broad market and indices have gone up but the stock you picked did not. You may even need to limit your investment to only a few selected individual stocks because you want to maximise the use of your limited capital. You can buy the SiMSCI.
You are bearish on the Singapore stock market and are concerned about the stock portfolio you are holding. You either sell your stocks now or just hope for the best. You feel you are holding good quality stocks but current market sentiments and / or performance of other co-related stock markets may cause the prices to slide. You can sell the SiMSCI to hedge your stock exposure. By selling the SiMSCI, SiMSCI Futures offers the ultimate solution and alternative for your investments. Together with other attributes, the flexibility, affordability and broad market exposure of Stock Index Futures enable you to tackle the situations highlighted above.
What is the margin requirement for Options, buy call or buy put?For the buyer of the Options, the buyer only pays the premium of the Options.
What is the margin requirement for Sell call or sell put?As the seller of the Options, mostly a full margin equivalent to that of the underlying Futures contract is required for the margin. This is calculated and computed by the SGX SPAN system for Options margining.
Do I need to pay commission for Options?Yes, trading in Options works the same way as trading the Futures contracts.
Do I still need to pay commission after the Option has expired?No, because the Options value depreciates with time and it becomes worthless when the Option has expired.
What is the purpose of trading options?Trading options gives the buyer the right to buy or sell a specific asset at a predetermined price on a future date. It is different from futures trading in that the options' purchaser is not obligated to buy or sell for the exercise price and can choose to do so only if it is profitable. Anybody, from speculators, arbitragers to hedgers can use options to take advantage of the price discrepancy or hedge against price fluctuations.
How do I trade options?You may buy or sell a call or a put option to open a position and execute an opposite trade to close out the position.
What are the benefits of trading options?Options are flexible because they allow you to tailor the exposure and risk you wish to have for an anticipated move in the options price. Trading options allows you to gain leverage without committing to a trade in a contract. As the buyer of an option, your risk is limited to the option premium. Moreover, when it is not favourable to change the underlying position, trading options allows investors to protect their positions against adverse price fluctuations.
What are the advantages of writing options?Writing an option provides one with an additional source of income arising from the premium received from the buyer of the option. The premium also serves as a cushion against the risk exposure one would incur.
What are the risks of buying options?Option is a wasting asset that has no value once it expires, hence the risks involved is that of losing the premium in a relatively short time frame.
Is option an exchange traded product or an over-the-counter (OTC) product?Options is an exchange traded product as well as an OTC product.
What types of options contracts are traded on the Singapore Exchange (SGX)?Contracts traded on the Singapore Exchange Ltd (SGX) include the Eurodollar, Euroyen TIBOR, Euroyen LIBOR, 10-Year Japanese Government Bond, Mini 10-Year Japanese Government Bond, Nikkei 225 Index, Nikkei 300 Index and MSCI Taiwan Index. More information can be found on the SGX website.
Are options available for all futures contracts?Not all futures contracts have options. The full list of options offered by KGI Ong Capital can be found here.
Is margining required when I trade options?Yes, margins have to be paid when you trade options.
Margin requirements represent the good faith deposits put up by Clearing Members and their customers to guarantee the performance of the obligations associated with their futures or options on futures positions. Margin is one of the financial safeguard systems that protect the integrity of Singapore Exchange Derivatives Trading Limited (SGX-DT) futures and options markets. The minimum margin level is determined by Singapore Exchange Derivatives Clearing Limited (SGX-DC) based on historical price change, volatilities and other factors SGX-DC deems relevant for all futures and options contracts.
Is the margin for buying options the same as that for selling options?The margins for buying options and selling options are different. The margin for selling options is higher as a higher risk is undertaken for selling options. On the other hand, the margin for buying option contracts is derived from the premium paid multiplied by the contract size.
Do options move as much as the underlying (futures)?Options do not move as much as their underlying (futures) unless they are in-the-money and/or very close to expiration. The amount an option can be expected to move given a 1-point move in the underlying futures contract is called delta. Delta fluctuates with time to expiration and the volatility of the underlying futures.
Do most options expire worthless?No, this is not always the case. Approximately 55% of options are closed out before expiry, around 15% are exercised and around 30% expire worthless.
Who are market makers?Market makers are professional traders, approved by the Exchange to send in orders to buy and sell specific series of options. To do so, they need to provide sufficient liquidity in such series.
Will I lose my investment if I buy an option and forget to excise it at expiry?With respect to this, there are two scenarios:
- Options that expire on the same day as the underlying futures: request to exercise such options (whether at-the-money or out-of-the-money options) on expiration day are prohibited.
- Options that do not expire together with the underlying futures: request to exercise such options are allowed.
Can I sell an option without owning it?Yes, you can sell an option which you do not own.
How can I cancel my option obligations?You can cancel your obligation as an option holder or writer by effecting a closing transaction before the expiration date.
What are commodities?The most popular physical commodities contracts can be broken down into several broad categories: metals, energy , grains, livestock , and food and fiber. Commodities are not paper assets, and in general, are produced and consumed at a price based on the forces of supply and demand.
What is a commodity futures?A commodity futures contract represents an agreement to buy or sell a specific type and grade of commodity for delivery at a specific time in the future at an agreed upon place at a specified price. In reality, commodity futures rarely lead to the delivery of an actual product, because the contract positions are typically closed out before the delivery date.
How are commodities traded?Commodity trading involves undertaking an agreement to buy or sell a specified amount of a commodity at a fixed price and date. By doing this, sellers can lock in a price for their products while buyers can avoid the risks of price fluctuations of the products. More information can be found in here.
In all futures markets, trading decisions are made in two ways - fundamental or technical, although many traders use a combination of both.
- Fundamental analysis: Includes all factors that influence supply and demand. For the physical commodities markets, fundamental factors include weather and geopolitical events in producing countries - outside forces that influence price action.
- Technical analysis: Technical analysis is based strictly on inside market forces. It involves tracking various price patterns that occurred in the markets in the past. Analysts focus on a variety of time frames, and trading decisions are based on past tendencies with the idea these price patterns tend to repeat themselves
What are the commodity products offered by KGI Futures (Singapore)?KGI Futures (Singapore) offers commodity products in three main categories:
- Energy Futures contracts: Crude Oil, Brent Crude, Mini Crude Oil, Natural Gas, Mini Natural Gas, Kerosene, Gasoline.
- Metal Futures contracts: Gold, Mini-sized Gold, Silver, Mini-sized Silver, Copper, Palladium, and Platinum.
- Agricultural Futures contracts: Corn, Cocoa, Coffee, Cotton, Soybeans, Soybean Oil, Soybean Meal, Oats, Orange Juice, Sugar, Wheat and Red Hard Winter Wheat.
How is the physical commodity delivery made on the Exchanges?Based on the specifications of the Exchange, the seller can put in his intention to make physical delivery on the Exchange. The Seller has to inform the exchange that he wants to deliver the product and does so at an assigned warehouse. The goods that are stored in the warehouse are verified by an approved assayer and a certificate is given to the seller.
What are the Gold/Silver contracts offered by KGI Futures (Singapore)?KGI Futures (Singapore) has the following Gold/ Silver products for trading:
- Spot Loco London Gold/Silver
- Spot Mini-Gold and Mini-Silver
- Gold and Silver Futures and Options (COMEX, CBOT, TOCOM and HKFE)
How is the interest on Gold/Silver contracts calculated?Interest is calculated based on the prevailing interest rate of Spot Gold/ Silver in the market and the daily settlement price of your Spot Gold/Silver overnight position.
When do I incur or earn interest?You earn interest if you are short Gold (long USD) while you incur interest If you are long Gold (short USD).
The scenarios above depend on the current Spot Gold interest rates.
What is Foreign Exchange ( Forex / FX ) margin account?A Foreign Exchange margin account allows you to trade foreign exchange over-the-counter on a margin basis. By nature of leveraging, you may trade in financial instruments with contract values larger than your capital outlay. The margin required in FX is to cover the price risk of the portfolio for a specified period. It is similar in concept with a futures margin account.
What is margin deposit?Margin deposit allows participation in trading by having only a portion of the value of the contract in their account. The margin requirement for each currency pair is set by KGI Ong Capital using the margin requirements for FX futures as a benchmark.
What does marked-to-market mean?Marked-to-market pricing for FX ( MTM ) are payable based on settlement prices at the end of each trading day. It means all outstanding positions will be revalued daily based on their respective settlement prices. Any unrealized profit or losses will then be marked against your equity in your account.
What happens when there is a margin call?In the event that the total net equity in your account drops below the maintenance margin level, there will be a margin call.
You can either:
- Liquidate or reduce your position( s ), or
- Bring in additional funds to increase your equity above or equal to the initial margin level.
Most traders / investors place their deposit sufficiently higher than the required margin to provide buffer against abnormal market movements and also to prevent frequent margin calls.
Can my margin deposit be in any other currencies?If you wish to top-up your account with currencies other than SGD and USD, kindly enquire with our credit department at +65 66711831 – 37 or email [email protected].
How will currency conversion be done?Currency conversion will be done at your request, at the prevailing rate of exchange as quoted by KGI Ong Capital. Clients may call the Forex Desk at +65 62271788 for the latest conversion rates.
What is FX trading?Forex trading refers to the exchange of one currency against another with the aim of profiting from the fluctuations in the exchange rate. Forex trading is primarily carried out by buying or selling to initiate a trade.
What is spot FX trading?Forex is traded on a spot basis, which means its delivery date is 2 days after the trade is initiated. Inter Bank Forex is normally traded on spot or Forward basis. Spot in general refers to a delivery date 2 business days after date of transaction whereas forward refers to a delivery date set at a specified retire date.
What is the minimum FX trading contract size?The minimum contract size is 5,000 for most currency pairs.
How do I calculate Profit & Loss? – An ExampleProfit is made by buying low and selling high. If you are bearish, short selling is possible in the FX market. The formula is as follows ( excluding commission and daily swap adjustments ):
Profit / Loss= ( Selling Price- Buying Price ) x Contract Size
Profit and loss will be in the counter currency of the contract.
Bought 3 contracts of USD / JPY @116.00
( i.e. bought USD300,000 against JPY at the price of JPY116 per USD )
Sold 3 contracts of USD / JPY @117.00
( i.e. sold USD300,000 against JPY at the price of JPY117 per USD )
Profit / Loss ( JPY )= ( Selling Price- Buying Price ) x Contract Size
= ( 117.00-116.00 ) x 300000
= JPY300, 000
Therefore a profit of JPY300, 000 is made.
Sold 5 contracts of GBP / USD @2.0300
( i.e. sold GBP500,000 against USD at the price of USD2.0300 per GBP )
Bought 5 contracts of GBP / USD @2.0250
( i.e. bought GBP500,000 against USD at the price of USD2.0250 per GBP )
Profit / Loss ( USD )= ( Selling Price- Buying Price ) x Contract Size
= ( 2.0300-2.0250 ) x 500000
= USD2, 500
What is swap?In Forex trading, this refers to the interest differential between 2 currencies.
How are swap point adjustments carried out?Different currencies carry different interest yields. When you are holding a FX position, you have bought (long) one currency and sold (short) another currency simultaneously. If you carry your position overnight, you will be receiving interest on the currency you bought (long) and paying interest on the currency you sold (short). The daily swap point adjustment reflects the interest differential of the two currencies you hold.
You bought ( long ) NZD100, 000 and sold (short) JPY 100,000 at an exchange rate of 89.00.
Assuming that the NZD interest rate is 8% and the JPY interest rate is 0.5%, you would be receiving 8% for your NZD and paying 0.5% for your JPY. This results in a net interest (swap point) gain if you carry your position into the next day.
Based on the assumption on interest rate differential above, the net interest swap gain calculation is as shown below
- Spot rate x ( NZD interest rate receivable – JPY interest rate payable ) / 360
Contracted exchange rate= 89.00
NZD interest rate receivable= 8%
JPY interest rate payable= 0.5%
The net interest swap point gain is:
89.00 x ( 8% - 0.5% ) / 360 = 1.85417%
Net interest receivable / payable is calculated by: Swap point x Contract size
Thus, you would receive:
1.85417 x 100,000 = JPY 1,854 for carrying the long NZD / JPY positioning into the next day.
This is also known as positive carry.
What is the roll over of position?Most spot FX trades are valued 2 business days later with the exception of USD / CAD, which is valued 1 business day later. This means that if you bought GBP100, 000 against the USD at 2.0300, you will have to deliver USD203, 000 2 business days later.
In leveraged trading, there is no such delivery on the value dates. All outstanding positions that have crossed the current trade date would be rolled over to the next spot value date. This would be done every day until the positions are closed.
Trading forex carries a high level of risk and may not be suitable for all investors. Increasing leverage increases risk. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analysis, prices or other information contained does not constitute investment advice.
What currencies does KGI Futures (Singapore) offer?KGI Futures (Singapore) offers over 30 currencies pairs (including the G7 majors, crosses and exotics currencies), some of which are listed below. For more details, you may click here or call our Forex Desk at (65) 6227 1788.
G7 MAJOR CROSSES EXOTICS AND OTHERS EUR/USD EUR/GBP USD/SGD USD/JPY EUR/JPY EUR/AUD GBP/USD EUR/CHF AUD/NZD USD/CHF All JPY Crosses AUD/USD All SGD Crosses NZD/USD USD/CAD
What are the spreads quoted by KGI Futures (Singapore)?Competitive spreads from as low as 1 pip (subject to market conditions) onwards on major currency pairs.