FKLI FAQ-3

1.    How much deposit should I place before I can trade?

You are required to place up-front cash as an Initial Margin (the value is to be determined by Bursa Malaysia Derivatives Clearing Sdn Bhd, which may differ from time to time) before trading. The required amount depends on the number of contracts that you intend to trade.

2.    How much is my total cost and capital outlay per contract?

You are required to pay a one-time stamping fee of RM10 upon opening an account. Other payments are as follows:

	Index Futures (RM)
Initial Margin*	3,500
Brokerage	25
Exchange Fee	5
Clearing Fee	1

Examples:
If you had

·    Sold 1 Index Futures contract @ 900

·    Bought I index Futures contract @ 870

Transaction	RM
Brokerage RM25 x 2	50
Exchange Fee RM5 x 2	10
Clearing Fee RM1 x 2	2
Total Cost	62
Trade profit
(900 – 870) 30pts x RM50	1,500
Less total cost	(62)
Net Profit	1,438

A 41% Return on Investment (ROI) is possible with an initial capital outlay of RM3,5000 when you trade Index Futures.

Note: * Initial margin value may differ from time to time

3.    How do I place my orders?

You must specify the following when placing an order with your futures broker:

·         Account number

·         Product

·         Whether it is a BUY or SELL Order

·         Number of contracts to be bought or sold

·         Contract month

·         Price

It is recommended that you give a stop-loss order to your futures broker to instruct closure of a position in the event of an unfavorable market move.

Example:
You buy a FKLI contract at 900 and place a stop-loss order at 870. In the event that the market declines to this level, your futures broker would automatically close the position at market price by selling the contract. The order will be matched at the immediate available bid price quoted at that point of time. This order would be given to the broker as "sell one stop order FKLI at 870".

Note: Futures trading allows you to buy and sell in whatever sequence you choose. You can buy first and then sell OR sell first then buy. Whichever sequence you choose, the aim is to strike a selling point where the selling price is higher than the buying price.

 

4.    What are my risks as a retail investor trading on futures and options?

Expiry
You must always remember that there is an expiry date on the open contracts that you currently have in your trading account. Upon approaching month-end, you must decide whether you want to:

·         liquidate the position and realize the profit or losses of that trade OR

·         roll over the position onto the next contract month (to close-out the current month position and open a new contract on the next trading month) to maintain the same direction

Constant monitoring
In hedging, you must ensure that your stocks correlate to the underlying. The main criteria to hedge your basket of stocks is that the stocks are part of the 100-component Composite Index stocks. However, if they are not, then constant monitoring is required should there be a need to rebalance whenever tracking errors occur. Tracking errors happen when the stocks fail to correlate with the Composite Index or the portfolio is skewed should some of the stocks get suspended or are involved in corporate exercises.

Possibility of losing your entire initial margin 
This happens if you lack discipline to follow your trading plan or target. Whenever you trade a futures contract, it is vital that you set targets both for profit (if your view is correct) and cut-losses (if you are incorrect and the market moves against your position).