FKLI FAQ

Below are some frequently asked questions and answer I managed to find from the web:

1.	What is the KLCI Futures contract?
A:	The KLCI Futures contract is a stock index futures contract that is based on the Kuala Lumpur Composite Index (KLCI). The contract code specified by the Bursa  Malaysia Derivatives Berhad ("the exchange") is "FKLI".
2.	What is a Stock Index Futures contract?
A:	A stock index futures contract is an agreement between two parties to buy or sell a basket of stocks that make up an index (eg. Kuala Lumpur Composite Index KLCI) at a specific time in the future for a specific price determined today. Since delivery of a basket of stocks is often a cumbersome exercise, stock index futures are cash settled instead.
3.	Is there only one FKLI contract traded?
A:	No. At any one time, there are always four contracts traded with different maturity dates. These contracts are known as the spot month contract, the next month contract, and the next two calendar quarterly month contracts. For example, in August 2000, the four contracts available for trading are the August spot month contract, the September next month contract and the December and March quarterly month contracts.
4.	How do I start trading the FKLI contract?
A:	To trade the FKLI contract, you will first need to open a client account with a licensed Futures Broker. You will need to complete an Account Opening Form, sign a Client Agreement, Risk Disclosure Statement and a questionnaire. You are also required to submit a copy of your NRIC.
5.	What is contract value?
A:	The contract value of a FKLI contract is the price of the futures multiplied by RM50. For example, if the price of the August futures contract is 815, the contract value is RM40,750 (815.0 x RM 50).
6.	How much do I need to start trading in FKLI contracts?
A:	To trade in FKLI contracts, you do not have to pay the full amount of your contract value. You only need to pay the initial margin amount, which is normally 5% to 15% of the contract value. The margin payment is a performance bond or good faith deposit to ensure performance of the contract (ie. cash settlement of the contract) when the contract matures. (The initial margin amount is set by the Bursa Malaysian Derivatives Clearing Berhad and may vary from time to time. Furthermore, brokers may require clients to pay a higher amount of deposit according to each client's risk assessment. On a daily basis, the daily profit or loss of your position will be reflected according to the daily change in value of your position, compared against the daily settlement price of the futures. This is known as daily marked-to-market valuation. The cash difference that you receive or pay is called a variation margin.
7.	Once I have bought (or sold) a futures contract, must I wait for the maturity of the contract before I can realise my profits or losses?
A:	No. You may close out (liquidate) your position at any time by entering into an opposite transaction. For example, if you had bought (long) one contract you only need to sell (short) one similar contract to lapse into maturity without liquidating your position beforehand, the contract will then be marked-to-market a final time according to the Final Settlement Value as declared by the Exchange.
8.	What is short selling?
A:	Short selling means selling an asset or instrument that you do not already own. One has to cover a short position by subsequently buying back the asset or instrument. Typically, an investor looks to selling at a higher price and then buying back at a lower price to liquidate his short position, thereby gaining a profit from a bearish market.
9.	Is short selling allowed in Futures?
A:	Yes, short selling is allowed in futures trading by virtue of the Futures Industry Act (FIA) 1993. In fact, one of the strongest appeals of trading futures is that you are able to profit from both bullish and bearish market conditions ~ short selling futures is a natural activity whereas short selling in the stock market is often encumbered with restrictions.