FKLI FAQ-2

1. How much do I need to start trading in FKLI contracts? The initial margin to trade is RM5,800 per contract (** updated on 22 Jan 2009) and is subject to margin calls everytime it falls below RM5,800 for any positions still open. The margin payment is a performance bond or good faith deposit to ensure performance of the contract (i.e. cash settlement of the contract) when the contract matures. (The initial margin amount is subject to change from time to time).  2. What about the marked-to-market process? On a daily basis, you will have to settle in cash, the daily profit or losses of your positions according to the daily change in valuation of your position at the daily closing prices of the futures. Any excess margin can be withdrawn by submitting withdrawal request form by 2:30pm on any business day and the cheque can be collected on the next business day. This is known as daily marked-to-market valuation. The cash difference that you receive or pay is called variation settlement. Any margin call must be topped-up by T+2 otherwise force-selling will occur.  3. How much transaction fees do I have to pay per contract? Brokerage fee : RM 50.00 Trading fee : RM 9.00 Clearing fee : RM1.00 (Total cost for one contract done is RM 60.00)  4. Once I have bought (or sold) a futures contract, must I wait for the maturity of the contract before I can realise my profit or losses? 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 liquidate your position. If you allow the 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.  5. What are the trading hours? Malaysia 8:45am to 12:45pm and 2:30pm to 5:15pm from Monday to Friday.  6. Trading Examples Example 1: Bullish Strategy A trader or a long hedger expecting rising stock prices could buy a futures contract on the KLSE CI. If the market price does turn up, the buyer will gain from the daily increase in the price of the KLSE Composite Index Futures contract ("FKLI"). In Example One, a bullish move is reflected in an increase of 8.5 points, from 1020.0 to 1028.5. When the long FKLI position is closed out on July 5th, the bullish position has a profit of RM850 (8.5 x RM100). Conversely, a decline of 8.5 would have resulted in a loss of RM850. Please note that all examples omit any commissions, brokerage fees or transaction costs. In this case, the trader would have earned a profit for his assumption of risk. The long hedger who bought rising stock index futures in advance of anticipated stock purchases could apply the gain in the futures position towards actual stock purchases, thus reducing their cost.    Example 2: Bearish Strategy Bear markets also offer profit opportunities. A trader or a short hedger anticipating lower stock prices could sell a FKLI contract short. A possible selling strategy if shown in Example Two. Here, the FKLI declined from 1020.0 to 1010.0. That decline of 10.0 points resulted in a RM 1,000 profit. In this case, the trader who sold short would have generated a profit. The short hedger who sold stock index futures to protect a stock portfolio could have achieved some protection for his portfolio in the subsequent market decline.