Introduction
to Stock
Index
Futures
MR TEO PAUL SIMON
Strategist, Phillip Futures
© PhillipCapital 2010. All Rights Reserved.
Disclaimer
The information contained in these course materials provided is the
option of the Course Trainer and not Phillip Futures. These course
materials contain information of a general nature only and are produced
for investor education purposes only. They do not constitute
investment advice in any manner whatsoever or have any regard to the
specific investment objectives, financial situation or individual needs of
any particular person receiving them. Examples are used for illustrative
purposes only and do not constitute investment advice.
Phillip Futures, or the course trainer, makes no guarantee, warranties,
representations of any kind whatsoever, express or implied, including
but not limited to, the accuracy, completeness, merchantability, or
fitness for any particular purpose, of such information or as to the results
obtained by any person from the use of any information or any financial
instrument mentioned in the course materials.
© PhillipCapital 2010. All Rights Reserved.
Content
•
What is a Stock Index
•
What are the characteristics of Index Futures
•
What Indices are available for trading
•
Why trade in Stock Indices
© PhillipCapital 2010. All Rights Reserved.
What is a Stock Index
An Index is a statistical measure of the changes in a basket of stocks
representing a portion of the overall market. – Investopedia
A stock market index is a method of measuring the value of a section of
the stock market. It is computed from the prices of selected stocks. - Wikipedia
A stock index is a compilation of stocks constructed in such a manner to
track a particular market. – About.com
© PhillipCapital 2010. All Rights Reserved.
What is a Stock Index
Interesting facts
The first stock index, the Dow Jones Industrial Average was created by Mr.
Charles Dow back in May of 1896.
At that time, it contains 30 of the largest and most influential companies in
the U.S.
© PhillipCapital 2010. All Rights Reserved.
What is a Stock Index
Stock Indices be traded through…
• Futures/Options Contracts
• ETFs (Exchange Traded Funds)
• CFDs (Contracts For Differences)
• Structured Products
© PhillipCapital 2010. All Rights Reserved.
What is a Stock Index
E.g. Components of Singapore MSCI Index (SIMSCI)
SINGAPORE
TELECOM
SINGAPORE PRESS HLDG
NOBLE GROUP
DBS GROUP
HOLDINGS
SINGAPORE TECH ENGR.
GOLDEN AGRI
RESOURCES
OCBC BANK
SINGAPORE AIRLINES
SEMBCORP MARINE
UNITED OVERSEAS
BANK
CITY DEVELOPMENTS
COMFORTDELGRO
KEPPEL CORP
GLOBAL LOGISTIC PROP
KEPPEL LAND
CAPITALAND
JARDINE CYCLE & CARRIAGE
CAPITACOMMERCIAL
TRUST
GENTING
SINGAPORE PLC
HUTCHISON PORT TRUST
CAPITAMALLS ASIA
FRASER AND
NEAVE
SEMBCORP INDUSTRIES
UNITED OVERSEAS LAND
WILMAR
INTERNATIONAL
CAPITAMALL TRUST
OLAM INTERNATIONAL
SINGAPORE
EXCHANGE
ASCENDAS REAL ESTATE INV
STARHUB
© PhillipCapital 2010. All Rights Reserved.
YANGZIJIANG SHIPBUILD
What is a Stock Index
E.g. Components of Singapore MSCI Index (SIMSCI)
Sector Name
Weight%
Financials
49.92
Industrials
24.28
Telecommunication Services
11.77
Consumer Discretionary
8.49
Consumer Staples
5.54
© PhillipCapital 2010. All Rights Reserved.
Characteristics of a Futures Contract
•
Allows you to go Long (buy) or Short (sell)
•
Leverage investment (small deposit allows you to control a big contract size)
•
Most index futures are very liquid
• Huge amounts of contracts traded everyday
• E.g. E-Mini S&P contract has an average of 300,000 contracts traded daily
•
Exchange-governed
• Exchange will undertake your counter-party credit risk
• Assurance that your funds are safe and your trades will be honoured
•
All Future contracts have expiry dates
© PhillipCapital 2010. All Rights Reserved.
What Indices are available for trading?
Indices that we can trade:
Asia and Asia Pacific Indices
-
MSCI Singapore Stock Index (SIMSCI)
MSCI Taiwan Index
China XinHua A50 Index
Japan’s Nikkei225, standard and Mini
Hong Kong Hang Seng Index, standard and Mini
India CNX Niffty Index
Sydney SPI200 Index
© PhillipCapital 2010. All Rights Reserved.
What Indices are available for trading?
Indices that we can trade:
Europe and U.S. Indices:
-
London FTSE 100
German DAX
French CAC40
Dow Jones Index ($5, $10, $25 contracts)
S&P500 Index (E-mini S&P is one of the highest traded contract in the
world)
Nasdaq100
E-mini Russell 2000 Index
© PhillipCapital 2010. All Rights Reserved.
Why trade Stock Indices?
Key advatanges of trading Stock Indices
1. Allows you to trade on general market sentiment rather than
trading individual stocks of companies
2. Is a ‘Fairer ground’ for trading
• eliminates issues that plague stocks trading e.g. insider trading,
corporate scandals, accounting scams
3. Gives you exposure to opportunities in foreign markets
• With more than 16 different regions for us to trade from, we can
gain access to foreign markets through each country’s stock index.
© PhillipCapital 2010. All Rights Reserved.
Why trade Stock Indices?
4. Hedging against your assets
• Hedge your portfolio of stocks against unexpected news or uncertainty
• E.g. Fundamental of stocks is still strong but due to general market
sentiment, the stock is sold down.
• In this case, you may want to short the index so that you may profit
from the downside using futures contract to cover the losses from
the stocks.
5. Liquidity
• There is a wide range of contracts offered in over 16 global exchanges
with more than 100 products available for trading.
© PhillipCapital 2010. All Rights Reserved.
Summary of Stock Index Trading
•
Can trade in both directions (long/short)
•
Can trade on the general market sentiment instead of individual stock
counters
•
Can trade in the stock indices of many different regions worldwide
•
Trade on Margin (leverage) i.e. frees up your capital for other uses
•
Can be used for hedging your stock holdings against unexpected news
or uncertainty
•
Longer hours of trading/more flexibility in trading hours E.g. S&P500 is
almost 24 hours
© PhillipCapital 2010. All Rights Reserved.
MR TEO PAUL SIMON
Strategist, Phillip Futures
DID: 6388 9617
Email: teops@phillip.com.sg
© PhillipCapital 2010. All Rights Reserved.