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Derivatives Investment

Sector Index Futures

Sector Index Futures is a futures contract with sector index as an underlying. Initially there will be a total of 5 underlying sectors available for trading: Energy and Utilities (ENERG), Food and Beverage (FOOD), Banking (BANK), Commerce (COMM) and Information and Communication Technology (ICT).

Advantages of Sector Index Futures Trading
  • Helping you manage sector rotation in a portfolio more efficiently
  • With these contracts, you can seek profits based on how you expect certain market sectors to perform or hedge your sector-related risk. These contracts give investor the ability to individually target and trade major sectors comprising the Sector Index.

  • Easy to analyze
  • Buying futures is like buying underlying assets. The only requirement is to be able to analyze the future trend for the Sector Index.

  • Speculating and short-selling possibilities
  • If you believe that the Sector Index will rise, you can make a profit by taking a long position in the futures market. Conversely, if you believe the Sector Index will fall you can make a profit by taking a short position in the futures market. Although you can take a short position in the futures market, it might not be possible to do so in the stock market because conditions for short-selling do not always exist.

  • Hedging
  • If you own a portfolio of stocks and believe that the market has risen too sharply over the past few weeks, and if you expect the index to fall, you can use futures trading as a hedging tool. By holding a short position in the futures market even if your stock portfolio shows a loss you can profit from your positions in the futures market.

Risks of Trading Sector Index Futures
  • Monitor your portfolio
  • Investing in futures contracts involves money placed on margin only, and the amount invested is far less than the value of the underlying assets. If investors make profit then on a mark-to-market basis the margin will increase. Conversely, if investors make a loss on a mark-to-market basis the margin will be reduced. If the margin level is reduced to a maintenance margin then the investor will be required to add margin money (i.e. a call margin) until it reaches the level of the initial margin. Therefore, investors should monitor their margin and position closely.

  • A limited lifespan
  • Sector Index futures contracts have a limited lifespan, so investors should take note of the maturity date.

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