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A stock futures contract is a commitment to buy or sell the financial exposure equivalent to a specific amount (contract multiplier) of shares of the underlying stock at a predetermined price (contracted price) on a specified future date. All stock futures contracts are cash settled, there is no physical delivery of shares when the contract expires. Upon expiry, profits and losses are credited or debited to the account of the contract buyers/sellers in an amount equivalent to the difference between the contracted price and the final settlement price multiplied by the contract multiplier. The final settlement price is the average of the midpoints of the best bid and offer prices for the underlying stock as quoted on The Stock Exchange of Hong Kong, taken at five-minute intervals during the last trading day. If investors of stock futures would like to close their futures positions before expiry, the seller of a stock futures contract simply buys back the contract to offset the open short position, while the buyer of a stock futures contract sells a stock futures contract to close the open long position.
Buyers and sellers of stock futures are required to post margin as they open a position in the market to ensure delivery of the contractual obligations. Clearing house would use the prevailing market closing price to calculate the floating profits / losses of all open futures positions after the market closes on every trading day, and the calculations would serve as the basis to the fund movements on margin account of the investors. If the margin falls below the stipulated level due to adverse price movements, investors must promptly restore the margin back to the original level. Otherwise the securities brokerages have the right to close the open positions on behalf of the clients without prior notice.
Low transaction cost
A stock futures contract is equivalent to several thousand of its underlying shares, and the trading commission depends on the number of contracts traded, thus the transaction cost is very low relative to value of the stock futures contracts concerned.
Greater convenience in short selling of stocks
Investors can sell stock futures at convenience. Investors can therefore profit by doing so in a falling market.
Investors trading stock futures contracts only pay a commission that is a very small portion of the contract nominal value. This ensures greater efficiency for hedging and transactions.
Lower currency risks for foreign investors
Stock futures contracts serve as a means for overseas investors to invest in quality local stocks in Hong Kong. Instead of paying the contracts in full, investors of stock futures are only required to maintain the required margin. This greatly reduces the currency risks borne by the overseas investors.
Active market making system
To ensure sufficient liquidity in the stock futures market, registered market makers will provide both the bid price and the ask price of the stock futures contracts within a specified spread. The participation of market makers as well as other market participants ensures a more active and liquid stock futures market for investors to open or close positions with ease.
Electronic trading systems
The HKFE electronic trading system is used for trading of stock futures contracts. All orders matching is executed in accordance to the order price and in chronological order, and the display of buying price, selling price and transaction price would be instant to ensure the highest level of market transparency.
Clearing house provides guarantee
Stock futures contracts are registered, cleared and guaranteed by HKFE Clearing Corporation (HKCC), which is a wholly-owned subsidiary of the HKFE. Since the Clearing Corporation is entitled as the counterparty of all outstanding contracts, there is no counterparty risk between the market participants. However, the financial obligations of participants towards its customers are not guaranteed. Investors must exercise due diligence in selecting which brokers to trade.
Hotline: (852)3890 1688