FTT SGX Trading Rules 4 — Questions and Answers
Question 1: In SGX futures trading, what does 'open interest' represent?
- The total number of outstanding futures contracts that have not yet been settled, closed, or expired (Correct answer)
- The total volume of contracts traded during the current day
- The number of contracts available to trade on the exchange
- The difference between the highest and lowest price traded during the day
Correct answer: The total number of outstanding futures contracts that have not yet been settled, closed, or expired
Open interest is the total number of futures contracts that are outstanding — they have been entered into but not yet closed out, exercised, or expired. Rising open interest indicates new money flowing into the market; falling open interest indicates contracts are being closed.
Question 2: What is 'initial margin' in futures trading?
- The deposit required to open and maintain a futures position, serving as collateral against potential losses (Correct answer)
- The profit made on the first day of holding a futures contract
- The minimum price movement in a futures contract
- The fee paid to SGX for executing a futures trade
Correct answer: The deposit required to open and maintain a futures position, serving as collateral against potential losses
Initial margin is the deposit required by the exchange and clearing house when opening a futures position. It serves as collateral to cover potential losses and ensures that both parties to the contract fulfil their obligations.
Question 3: What is 'mark-to-market' in futures trading?
- The daily settlement of gains and losses based on the closing futures price, credited or debited to the margin account (Correct answer)
- Setting a target price for a futures position
- The process of valuing a portfolio at its historical book value
- Matching a futures price to the spot price of the underlying asset
Correct answer: The daily settlement of gains and losses based on the closing futures price, credited or debited to the margin account
Mark-to-market is the daily settlement process in futures trading where gains and losses are calculated based on that day's closing price and credited or debited to the trader's margin account. This ensures financial obligations are settled regularly.
Question 4: What is the 'basis' in futures trading?
- The difference between the spot price of the underlying asset and the futures price (Correct answer)
- The commission charged by a broker on a futures trade
- The minimum price movement (tick) in a futures contract
- The expiry date of a futures contract
Correct answer: The difference between the spot price of the underlying asset and the futures price
The basis is the difference between the spot (cash) price of an underlying asset and the price of the corresponding futures contract. Basis typically converges toward zero as the futures contract approaches its expiry date.
Question 5: Which SGX futures product tracks Singapore's benchmark Straits Times Index?
- SGX SGD Nifty 50 Futures
- SGX MSCI Taiwan Index Futures
- SGX CNX Nifty Index Futures
- SGX MSCI Singapore Index Futures (Correct answer)
Correct answer: SGX MSCI Singapore Index Futures
SGX MSCI Singapore Index Futures track the MSCI Singapore Free Index, which closely correlates with the Straits Times Index (STI). These futures allow investors to gain leveraged exposure to or hedge against Singapore equity market movements.
Question 6: What is a 'margin call' in futures or securities margin trading?
- A demand by the broker or clearing house for the investor to deposit additional funds when the account value falls below the maintenance margin level (Correct answer)
- A request by an investor to withdraw profits from their account
- A notification that a new futures contract is available for trading
- An instruction from SGX to a member to reduce their position size
Correct answer: A demand by the broker or clearing house for the investor to deposit additional funds when the account value falls below the maintenance margin level
A margin call is issued when an account's equity falls below the maintenance margin level due to adverse price movements. The investor must deposit additional funds to bring the account back up to the initial margin level, or the broker may close out the position.
FTT SGX Trading Rules 4
In SGX futures trading, what does 'open interest' represent?