Enhance your portfolio with Single Stock Futures

Single stock futures (SSF) are traded all over the world. The trading volume in 2012 for SSF reached as high as 1 billion contracts. Some of the major exchanges that trade SSF are NYSE Euronext (247 million contracts), MICEX (241 million contracts), Deutsche Bourse (196 million contracts), the National Stock Exchange of India (153 million contracts) and the Korea Exchange (100 million contracts).

In Thailand, SSF began in 2008 with only 3 underlying stocks and with an average daily volume of only 154 contracts. Since 2008, the volume has grown significantly and by 2012, the volume reached 8,849 contracts per day.

Currently, the average daily volume is as high as 34,924 contracts, an increase of almost 300 per cent from 2012.

There's no surprise as to why there was significant growth in the volume of SSF. When compared directly to trading stocks, SSF can provide several advantages such as leverage, ease of shorting and flexibility. SSF gives traders a mechanism to exploit any market movement, up or down, by going long when you believe a share price will increase or going short when you believe the share price will fall.

In general, investing in SSF is less costly. And this is where leverage comes in.

For example, if you want to buy 1,000 shares of KTB at Bt20 per share through the Internet. You would have to pay the full value of your investment of Bt20,000 plus commission and regulatory fee of roughly 0.16 per cent (about Bt32). However if you were to buy (long) one contract of KTB futures through the Internet - which is equivalent to buying 1,000 shares of KTB stock - you would only have to put down the initial margin of Bt1,292 plus commission and regulatory fee of roughly 0.1 per cent (Bt19). You can see that by investing in Single Stock Futures, you use much less capital and pay less transaction cost.

When trading a futures contract you need to know how mark-to-market works. Let's follow up from the example above.

If the price of KTB futures rises by Bt0.50, then by the end of the trading day, the price of KTB futures is marked-to-market.

The profit of Bt500 incurred for the day is credited into the investor's account (investor's account would now be Bt1,792: Bt1,292 + Bt500). The opposite will happen to investors who sold (short) KTB futures. A loss of Bt500 is deducted from the investor's account. Given the rise in popularity of Single Stock Futures, on January 14, TFEX has changed the position limit from a single level of 20,000 contracts to a multi-level of 20,000 - 435,500 contracts.

Each SSF now has its own position limit that is proportioned to its number of listed shares. TFEX will review and announce the position limits every six months at the beginning of January and July.

TFEX is also preparing to launch a new batch of SSF by the first quarter of this year. Currently there are 30 underlying stocks (ADVANC, BANPU, BAY, BBL, BTS, CPALL, CPF, DTAC, HMPRO, IRPC, ITD, IVL, KBANK, KTB, LH, MINT, PS, PTT, PTTEP, QH, SCB, SCC, STA, TCAP, THAI, TMB, TOP, TRUE, TTA, TUF). The top five SSF with the highest volume in 2012 were KTB (771,164 contracts), BTS (510,578 contracts), ITD (161,943 contracts), TRUE (144,515 contracts) and TMB (119,367 contracts). The new batch will add about 15-30 new underlying stocks and will cover more sectors, giving investors more choice.

The contract size of SSF is 1,000 shares. The contract terms are: four nearest quarterly months with the nearest month usually having the highest volume. For more information please visit www.TFEX.co.th or contact our call centre at (02) 229 2000.