Frequently Asked Questions
- What are derivatives?
- Why trade derivatives?
- Are derivatives products risky?
- What are the type of derivatives products?
- What is the first product?
- Who can trade in derivatives market?
- What are the trading hours?
- What do the terms long and short mean?
- Is short selling allowed in the derivatives market?
- What is the initial margin?
- What is margin multiplier?
- What is the variation margin?
- Do I have to make any deposit for variation margin during the day?
- What is an intra-day margin call?
- What happened if I don’t close my position on the last trading day?
- Can I close my position before the settlement or expiry day?
- What do you mean by open interest?
- What is the contract (lot) size for 1 MT30 Index Futures?
- How can I learn how to trade futures products?
- How do I start trading in the derivatives market?
- How derivatives market impacts listed companies?
What are derivatives?
Derivatives are contracts between two parties, whose terms & conditions are set today, to deliver a certain asset at a future date
From its name Derivatives are contracts that derive their price from an underlying which can be stock, index, etc.
Why trade derivatives?
Derivatives products are alternative trading instruments that offers trading and hedging opportunities for clients. Derivatives offer embedded features in their products such as short selling and leverage.
Are derivatives products risky?
Like any other security, knowledge is key to start trading. Derivatives are perceived as more complex and sophisticated products that require deeper knowledge of uses, risks, and benefits.
What are the type of derivatives products?
There are two main of derivatives products:
1: Exchange traded: which include futures and options and are only trade on regulated exchanges (the type Tadawul are planning to launch).
2- Over the Counter (OTC): which include Forwards and swaps and are not traded on a regulated exchange
What is the first product?
MT30 Index Futures is the first product in Derivatives Market and it is an index futures that tracks MT30 index
Who can trade in derivatives market?
All institutional and corporate clients, Individuals as well as Individual DPMs. A suitability assessment will be conducted by participating members.
What are the trading hours?
The trading hours are from 09:30 to 15:30.
What do the terms long and short mean?
Long means buy a contract, short means sell a contract
Is short selling allowed in the derivatives market?
Short selling of futures contracts is allowed. Short selling futures is a popular trading and hedging strategy. No borrowing or lending of the underlying (asset) is necessary.
What is the initial margin?
Initial margin is the minimum amount the trader deposits with the broker to trade the futures. Initial margin is prescribed by Muqassa (the clearing house). However, the brokers have the right to ask for higher initial margin depending on the risk profile of the customer.
What is margin multiplier?
is the number by which the minimum percentage margin, required by the Muqassa, have to be multiplied to form the margin required by the clearing member from his clients for newly entered position
What is the variation margin?
The futures price can fluctuate on a daily basis, which can create a profit or a loss. The variation margin or mark to market (MTM) is the adjustment of profit or loss made for the day.
Do I have to make any deposit for variation margin during the day?
In some cases, where the market goes against your position by a large amount. The investor might have to deposit the variation margin (intra-day margin call)
What is an intra-day margin call?
It is an intra-day variation margin where customers may need to top up their margin if their margins are eroded due the volatility of the market within the day.
What happened if I don’t close my position on the last trading day?
Your position will be closed and settled automatically on the last trading day based on the final settlement price and you the customer will be charged settlement fees and not transaction fees
Can I close my position before the settlement or expiry day?
Your position can be closed at anytime by entering a trade in the opposite direction (Sell or Buy) also known as position square off. Once the positions are closed the margins are unblocked.
What do you mean by open interest?
Is the number of future contracts outstanding, (long and short) netted means all long positions minus all short positions for one specific product including all expiry (maturities), which are not settled / or Total number of futures contracts for a specific month, long and short, that have been entered and not yet closed out or expired. Each trade has a buyer and seller, but for Open Interest only one side is counted.
What is the contract (lot) size for 1 MT30 Index Futures?
Contract lot size is the minimum number of units of the underlying you buy or sell when 1 contract is bought or sold. Kindly refer to the contract specification of MT30 Index Futures for lot size.
How can I learn how to trade futures products?
Tadawul offers educational material on their website. We also offer free sessions for public under invest wisely program. As well as the trading simulator which will give you first-hand experience on the mechanisms of trading these contracts.
How do I start trading in the derivatives market?
To start trading in derivatives market, you have to open a trading account through one of Tadawul Derivatives Trading members. For more Information about our members please visit Members of the Exchange.
How derivatives market impacts listed companies?
Our first derivatives contract MT30 Index futures, which has MT30 index as the underlying, constitutes a basket of the largest and most liquid 30 stocks in the Saudi Capital Market. Our observation based on other markets shows there is no direct impact on the listed companies.