Futures Dictionary Series: Contract Specifications for Bursa Malaysia Derivatives Crude Palm Oil Futures (FCPO)
Trading futures is not too different than trading stocks. But there are a few fundamental differences you need to understand before making your first futures trade. The most important difference is that every futures product has its own specifications. Because when you are trading a futures contract, you are actually trading a piece of paper that gives you the obligation to buy or sell that commodity.
So in this eighth installment of our Futures Dictionary Series we’ll explain the most important terms in the Bursa Malaysia Derivatives Crude Palm Oil Futures (FCPO) contract specifications to help you understand it better.
Contract Specifications for Bursa Malaysia Derivatives Crude Palm Oil Futures (FCPO)
The contract size for FCPO is 25 metric tons of Crude Palm Oil. That means if you trade 1 lot of FCPO, you are actually trading 25 metric tons of Crude Palm Oil.
Minimum Price Fluctuation
For FCPO, it is RM1 per metric ton. Also called tick, minimum price fluctuation means the smallest increment a given futures market can move. Since the contract size of FCPO is 25 metric tons, you would multiply 25 x RM1 = RM25. So, every time you see the price of FCPO move up or down 1 point, you know that means it’s a RM25 move. A 5 point move in the price of FCPO would mean it is worth RM125 if you are trading one contract.
Daily Price Limits
Daily price limit is the level within many commodity, futures, and options markets are allowed to rise or fall in one day. Once a futures price has increased by its daily limit, there can be no trading at any higher price until the next day of trading.
For FCPO, daily price limits are eliminated during the spot month in which the contract expires. But for any other months, the prices cannot be more than 10% above or below the settlement prices of the preceding business day.
The contract months for FCPO are spot month and the next 5 succeeding months, and thereafter, alternate months up to 24 months ahead. As contract months mean the month in which a futures contract expires, as it is now December 2012, the contract months are December 2012 (spot month), January 2013, February 2013,March 2013, April 2013 and May 2013 (next 5 succeeding months). Then alternate months up to 24 months ahead.
Trading hours for FCPO are as follow:
|First trading session||10:30 am to 12:30 pm (Malaysian time)|
|Second trading session||3:00 pm to 6:00 pm (Malaysian time)|
Speculative Position Limits
Speculative position limits are the maximum number of net long or net short positions which a client or a participant may hold or control. It is a restriction imposed by Bursa Malaysia Derivatives to prevent large price swings associated with excessive speculative trading. For FCPO, the speculative position limits are set as below:
|Spot Mont||800 contracts|
|Any one contract month except for spot month||10,000 contracts|
|All months combined||15,000 contracts|
Final Trading Day and Maturity Date
This defines the final day that FCPO contract may trade or be closed out before physical delivery must occur. By the end of the last trading day, if you do not close your position, then you must be prepared to accept delivery of Crude Palm Oil. For FCPO, spot month contract expires at noon on the 15th day of the delivery month, or if the 15th is a non-market day, the preceding business day.
Tender period is the period where you will receive the physical delivery of palm oil if you hold the FCPO spot month contract since the settlement for FCPO is physical delivery. The tender period is the first business day to the 20th business day of the delivery month, or if the 20th is a non-market day, the preceding business day.
Contract Grade and Delivery Points
This describes the quality of the Crude Palm Oil that you will receive (should you hold the FCPO spot month contract) and the places where the Crude Pam Oil will be delivered to you. The delivery points for Crude Palm Oil are Port Kelang, Penang/Butterworth and Pasir Gudang (Johor).
This describes the amount of Crude Palm Oil that will be delivered to you (again, should you hold the FCPO spot month contract) which is the contract size or 25 metric tons of Crude Palm Oil.
Read more of our past Futures Dictionary Series:
1. Futures Dictionary Series: Approved Delivery Facility
2. Futures Dictionary Series: Capital Market Services Representatives (CMSR)
3. Futures Dictionary Series: Actuals
4. Futures Dictionary Series: At The Market
5. Futures Dictionary Series: Back Months
6. Futures Dictionary Series: Futures Spread
7. Futures Dictionary Series: Market Order
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