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Derivatives are instruments whose value depends on some other more basic underlying asset or commodity. It includes a broad class of instruments that include Forwards, Futures, Options and Swaps. Derivatives markets enable corporations and individuals to manage and reduce risk and control exposure to adverse price movements associated with holding an underlying asset or commodity. Derivatives markets also provide tremendous opportunities for investors to profit from the price movements in the underlying markets.
A Futures Contract is a legally futures trading brokers malaysia agreement made between two parties to buy or sell a commodity or financial instrument, at an agreed price, on a specified date in the future. The quality and quantity of each contract is standardised, hence, the price at which the contract is established is the only variable and is determined between the buyer and seller at the time when the contract is traded.
Futures Contracts are listed on Exchanges and the performance and obligations under the contract are guaranteed by the Exchange's Clearing House. Futures offer unique profit opportunities in bull or bear markets since players can initiate buy or sell positions. Investors can profit from any price volatility as a result of global developments that will impact the financial and commodity markets. Futures also allow investors to take advantage of leverage factor by holding a larger investment value with a smaller capital outlay and returns greater than the same futures trading brokers malaysia equity investment.
Futures also provides a mechanism for hedging adverse price movements associated with holding an underlying portfolio of equities, financial instrument or commodity. Institutional Players - as fund managers, insurance companies, financial institutional, commodity trading house and refineries are among the most active players in the market.
Futures trading brokers malaysia contract allow them in managing their portfolios and diversification of risks. Hedgers - market participants who use their strategies in derivatives market to minimize their risk exposure in the underlying market.
Local Participations and Retail Investors - individual investors or traders who assume risk in return for trading profits. Stock Index futures are derivatives instrument whose value depends on the value of the Underlying Stock Market Index.
Commodity Futures are derivatives futures trading brokers malaysia whose value depends on the value of the Underlying commodity. It is a physical-settled contract, upon expiry of the contract, the buyer has to take delivery of the physical CPO. FCPO prices are determined by market supply and demand with Bursa Malaysia Derivatives Berhad providing the marketplace for players to trade. Market orders - These are orders placed for immediate execution at the best available ask or bid price in the market.
Generally, market orders are used when the trader wants a trade-done quickly and is not too concern with negotiating for a better price. Limit orders - A limit order stipulates a price limit for the execution of the transaction. A buy limit order indicates that the futures contract may be purchased only at the price designated or at a lower price.
A sell limit order indicates that the futures contract may be sold at the price designated or at a higher price. Stop order - A stop order may be used to stop loss, to protect profit or to initiate strategies based on futures trading brokers malaysia price levels.
Whenever the futures trades at or beyond the designated price of futures trading brokers malaysia stop order, the stop orders convert into a market order in the electronic trading system. This conversion is done automatically. A buy-stop order specifies that the order is not to be executed until the market rises to a designated price.
A sell-stop order specifies that the order is not to be executed until the market price falls to a designated price. Stop Limit Order - It is a buy or sell order that is to be executed at a specified price or better, once the price of the instrument in the market has reached the trigger price that has been specified.
Stop limit is best used when an investor wants to enter or exit market at certain specified prices know as Trigger and Limit prices. Day Order or Good for the Day - The limit or stop order will lapse at the end of the trading day if futures trading brokers malaysia particular date has been set for its validity. It is prudent that futures trading brokers malaysia record of such futures trading brokers malaysia is kept and monitored on a daily basis.
Basis Orders - Also known as spread orders, basis orders are used futures trading brokers malaysia taking a spread position, i. The trader attempts to make a profit from changes in the differential between the market price of the respective contract months as time goes by.
Futures contracts provides leverage through margin where an investor needs only put up a marginal sum of the contract value instead of the full amount of the contract value. This sum of money is often referred to as the Initial Margin. It is a form of good faith deposit which ensures that counter-parties to the transaction can pay the cash difference when the trade is settled. Margins are required to be deposited with the Futures broker to start trading.
A case study on FKLI product margin calculation. Assumptions made on the current margin requirements for FKLI futures contract is:. The futures trading brokers malaysia of this compilation is to promote a better understanding of the futures market. The definitions are not intended to state or suggest the correct legal significance of any word or phrase.
Ask The price that the market participants are willing to sell. Bid The price that the market participants are willing to pay. Bear Market A market in which prices are declining.
Bull Market A market in which prices are rising. Cash Price Market price of the underlying contract. Also called spot price. Final Settlement Final disposition of open positions on the last trading day of a contract month.
Occurs in markets where there is no actual delivery. Contract Month A specific month in which delivery or cash settlement may take place under the terms of a futures contract. Also called delivery month. Convergence A term referring to cash and futures prices merging as the futures contract nears expiration, that is, the basis approaches zero.
Hedge The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. It involves having opposite positions in the cash market and futures market at the futures trading brokers malaysia time.
Hedger A person or firm who uses the futures market to hedge. Leverage The use of a small amount of assets to control a greater amount of futures trading brokers malaysia. Margin Funds or collaterals that must be deposited by a customer with his broker, by a broker with a clearing member or by a clearing member with the clearing house. The margin helps to futures trading brokers malaysia the financial integrity of brokers, clearing members and the exchange as a whole.
Margin Call A call from a clearing house to a clearing member, or from a futures trading brokers malaysia firm to a customer, to bring margin deposits up to a required minimum level. Mark-to-Market The daily adjustment of margin accounts to reflect profits and losses. Open Interest Total number of futures contracts that have not yet been offset or fulfilled for delivery. Premium The excess of one futures contract price over the cash market price.
Variation Margin Futures positions are revalued daily at the closing price, and variation margin is the payment receipt of losses profits reflected in the customer's account based on the daily revaluation. The information contained in this site is based on data obtained from sources believed to be reliable. Accordingly, neither Hong Leong Investment Bank nor any of its related companies and associates nor person connected to it accept any liability whatsoever for any direct, indirect or consequential losses including loss of profits or damages that may arise from the use or reliance on the info or opinions in this publication.
Education What are Derivatives Market? Morning Digest 3 Jan Morning Digest - 1 Apr, Final disposition of open positions on the last trading day of a contract month. A specific month in which delivery or cash settlement may take place under the terms of a futures contract. Futures trading brokers malaysia term referring to cash and futures prices merging as the futures contract nears expiration, that is, the basis approaches zero.
The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. Funds or collaterals that must be deposited by a customer with his broker, futures trading brokers malaysia a broker with a clearing member or by a clearing member with the clearing house.
A call from a clearing house to a clearing member, or from a brokerage firm to a customer, to bring margin deposits up to a required minimum level. Margin Futures positions are revalued daily at the closing price, and variation margin is the payment receipt of losses profits reflected in the customer's account based on the daily revaluation.