Share

Tweet this

7 Common Questions About the FKLI

Add to Flipboard Magazine.  

7 Common Questions About the FKLI

The FKLI is one of the only two popular futures contracts traded on Bursa Malaysia Derivatives Exchange because it is a cheaper alternative to the competitively-valued FCPO futures. The FKLI is now a trend favorite among retail investors. In this article, we answer seven of the common questions traders tend to ask about FKLI.

Q1: What is the FKLI?

The ticker symbol FKLI actually stands for FTSE Bursa Malaysia Kuala Lumpur Composite Index futures. The other known abbreviations are FBM KLCI futures and KLCI Index futures.

As the name suggests, the FKLI is an equity index futures contract with FTSE Bursa Malaysia Kuala Lumpur Composite Index as its underlying asset. The FKLI is also another type of derivatives products and traded on Bursa Malaysia Derivatives Exchange. Trading the FKLI allows futures traders to speculate and earn from the daily performance of FTSE Bursa Malaysia Kuala Lumpur Composite Index.

Q2: What are Equity Derivatives?

According to Bursa Malaysia Derivatives Berhad (BMD), equity derivatives are a class of derivatives, which value is at least partly derived from one or more underlying equity securities.

Besides the FKLI, other equity derivatives offered by Bursa Malaysia Derivatives are FTSE Bursa Malaysia KLCI Options (OKLI) and Single Stock Futures (SSFs).

Bursa Malaysia Derivatives Exchange

Q3: What is the Contract Specification of the FKLI?

FKLI is traded at Bursa Malaysia Derivatives Exchange with the ticker symbol “FKLI”. Pricing unit for FKLI is Ringgit Malaysia with tick size (minimum fluctuation) at 0.5 index point valued at RM25. Settlement for the FKLI is by cash based on the Final Settlement Value.

Trading for the FKLI is done in two sessions; the first session is from 8.45 am to 12.45 pm and the second session is from 2.30 pm to 5.15 pm. Last trade date is the last Business Day of the Contract Month.

Contract months are spot month, the next month, and next 2 calendar quarterly months. The calendar quarterly months are March, June, September and December.

Daily price limit is capped at 20% per trading session for the respective Contract Months except the spot month contract. There shall be no price limits for the spot month contract. There will be no price limit for the second month contract for the final 5 business days before expiration.

Speculative position is limited at 10,000 contracts, net gross open position.

Q4: What is the contract size of the FKLI?

The FKLI contract size is determined by the following calculation:

    Value of the FKLI futures x RM50 = Contract Size

Example:

    FKLI Feb 2012 Value
    RM1,560

    Contract Size

    (RM1,560 x RM50) = RM78,000

Q5: How much is needed to start trading the FKLI?

The FKLI initial margin requirement is RM4,500 per contract (correct as of article date) and is subject to change from time to time depending on the market conditions. The FKLI initial margin requirement is a form of collateral or performance bond that is returned to you once you have closed out all your open positions.

You can check the latest initial margin requirement rates for the FKLI here.

FBM KLCI Futures (FKLI)

Q6: Why trade the FKLI?

The FKLI is traded for various reasons, especially as a way of managing volatility on the local stock market. Some of the popular reasons are as follows:

  1. Hedging
    A Fund Manager trade the FKLI as a form of hedging to protect against a potential decline in equity portfolio value.
  2. Speculation
    Retail Traders trade the FKLI to gain leveraged exposure arising from price volatility in the FTSE Bursa Malaysia Kuala Lumpur Composite Index.
  3. Lower Cost of Entry
    Buying the FKLI is much cheaper than obtaining the physical stocks. You get the similar exposure to the value of the underlying stocks but without the expenditure of an outright purchase.
  4. Short Selling
    Trading the FKLI allows you to sell first and purchase later to close out your trading positions.

Q7: What are the risks of trading the FKLI?

The most significant risk of trading equity index futures such as the FKLI is that you can lose more than the amount you initially put to start trading.

If you buy (long) an equity index futures position and the stock market drops drastically in a single day, you could lose enough to warrant a margin call.

If you fail to fulfill the margin call, you not only lose your position but you also would end up owing your broker. Therefore, it is crucial to have a solid risk management in terms of leverage and cash reserve when trading equity index futures.

###

Wan Zuraiha Wan Zakaria is a staff writer at Oriental Pacific Futures (OPF) where she writes on investment and trading. OPF is a futures and options broker based in Kuala Lumpur, Malaysia and provides electronic trading, brokerage and clearing services to retail and institutional traders since 2007. OPF is licensed under the Securities Commissions of Malaysia and offers cash-settled derivatives instruments traded on Bursa Malaysia, as well as select major derivatives exchanges around the world.

Oriental Pacific Futures articles published on the Corporate Website (www.opf.com.my) may be reprinted, reposted or distributed free for educational purposes only on the condition that Oriental Pacific Futures and the Corporate Website link information http://www.opf.com.my are included. However, other organizations are invited to link to articles that are available in the public area of the Oriental Pacific Futures’ Learning Resources website. No additional permission is needed for such a link.

SiteLock