How does FKLI trading works?
In a real-life scenario, let's consider a trader named Muthu who is interested in FKLI trading. Muthu conducts his market analysis and anticipates a bullish trend in the Malaysian stock market index over the next few months. He sees that futures contracts are available for trading in May, June, September and December. There are always 2 spot month contracts and 2 nearest quarterly month contracts available.
Based on his analysis and market research, Muthu decides to take a long position (buy) in the July FKLI futures contract at a price of 1,600 points.
Each point movement in the FKLI index is worth RM50. Muthu buys one contract, which represents a value of RM50 per point.
If Muthu's prediction is correct and the FKLIcontract rises to 1,650 points anytime before contract expiry in July, he can sell (short) to close his position and his profit calculation would be as follows:
Profit = (Sell Price - Buy Price) x Contract Size
Profit = (1,650 points - 1,600 points) x RM50
Profit = 50 points x RM50
Profit = RM2,500
In this case, Muthu would make a profit of RM2,500 from his long position in the July FKLI futures contract.
Conversely, if the FKLI index decreases to 1,580 points and Muthu decides to cut loss, his loss calculation as follows:
Loss = (Sell Price - Buy Price) x Contract Size
Loss = (1,580 points - 1,600 points) x RM50
Loss = -20 points x RM50
Loss = -RM1,000
**Considerations for Beginners**
Futures trading, including FKLI, offers advantages such as leverage, hedging opportunities, and liquidity. However, it also carries risks, such as market volatility and margin calls. To navigate these complexities, beginners should seek advice from financial professionals, start with smaller trades to gain experience, and develop a thorough understanding of the futures market dynamics.