Derivative - Pinetree Securities

Derivative

Derivative

  1. What types of derivative securities can be traded in Vietnam?

Currently on the Vietnam Stock Market, individual investors are allowed to buy/sell futures contracts on the VN30 index and futures contracts on government bonds on the system of the Hanoi Stock Exchange.

  1. Is it possible to make profit from derivatives when the market declines?

Unlike underlying stock trading where profits can only be made from rising stock price, derivative trading allows profits to be made even when the market declines. When predicting that the market will decline, investors can take a position to sell derivative contracts. If the price trend in the market goes as predicted, investors can take profits by closing the position at a price lower than the initial position opening price.

  1. Is it possible to trade T0?

Unlike underlying securities with T+2 trading time, futures contracts have T0 trading time, allowing investors to buy and sell futures contracts intraday. Investors can take the intraday advantage of futures contracts to trade multiple rounds during the day. Profit/loss will be recorded at the time of transaction and payment at the end of the day.

  1. Can I short sell the futures contracts?

Futures contracts allow investors to take a short position without having to take a long position in the futures contract or hold the underlying security. Therefore, it can be considered that investors can take a “short” position when trading futures contracts.

5. What is the leverage advantage of futures contracts?

Leverage advantage is a different feature of derivative securities compared to underlying securities. Basically, when participating in futures trading, investors only have to spend a deposit with a value smaller than the value of the contract the investor wants to trade.

6. What are valid margin assets for futures trading?

Eligible collateral assets for futures trading are money and listed securities. For listed securities, the valid margin value will be the discounted value of the security price.

  1. What is the maturity date of the VN30 index futures contract?

It is Thursday of the 3rd week of that month,

  1. At the contract expiration date, if I do not close the VN30 index futures position, what will happen to my account?

At the contract expiration date, if the customer does not close the futures contract position, the closing price of that futures contract will be calculated as profit/loss compared to the the average weighted price of VN30 in the last 30 minutes of the contract expiration date

For example: KH Long 01 futures contract, at the expiration date, the futures contract has a closing price of 1120 and the average weighted price of VN30 in the last 30 minutes of that day’s trading session at 1125 => Customer lost 1125 – 1120 = 5 points, equivalent to a loss of 500,000 VND.

  1. On what basis is the initial margin ratio for the VN30 index futures contract calculated?

The calculation of the initial margin rate of the VN30 Index Futures Contract is carried out by the Clearing Center based on an estimate of the one-day change in the Futures Contract price. Securities Companies may stipulate an initial margin rate higher than or equal to the specified margin rate. The Clearing Center may increase or decrease this rate depending on market conditions and actual trading situation at any time.

10. How are futures contracts settled?

VN30 index futures contracts are settled in cash.

The buyer and seller do not need to deliver/receive assets in physical form. The profit/loss of each party participating in the futures contract is determined based on the futures contract price (the price agreed upon in advance by both parties) and the underlying asset price at the time of contract expiration.

The party incurring the loss must transfer the money to the party generating the profit. The transferred amount is equal to the value of the resulting profit/loss.

  1. How will my account be handled when it is at the warning threshold?
  • At warning threshold levels 1 and 2, Pinetree will warn or request customer to add additional collateral.
  • At warning level 3, the derivative trading account will be temporarily suspended from trading as the request of VSD. The account will not be allowed to perform transactions to open new positions, except for reciprocal transactions to close positions (these transactions are performed by Pinetree under the approval of VSD), or to supplement margin assets. to reduce margin usage ratio.
  1. Future contract investment strategy

There are two basic strategies in derivatives trading: Price speculation and Risk prevention.

a) Price Speculation strategy is suitable when investors want to buy and sell futures contracts with the purpose of making a profit based on the price difference. There are 3 main methods:

Long-term contract investment strategy: Method of investing in long-term futures contracts over 3 months, using fundamental analysis based on macro analysis and analysis of the VN30 stock basket.

Short-term contract investment strategy: Investment method based on short-term fluctuations of the VN30 index and futures price. In the medium and long term, especially when approaching the futures contract expiration date, the futures contract price tends to approach the VN30 index.

Intraday trading strategy: Intraday investment method based on technical analysis. Investors use technical analysis on the price chart of the VN30 index to determine buying and selling points to exploit price differences.

b) Risk Prevention Strategy is appropriate when investors want to protect portfolio value against the risk of adverse developments in the stock market.

When the investor owns a diversified portfolio with codes belonging to VN30 or when the investor’s portfolio has a beta coefficient equivalent to the beta coefficient of the VN30 index. Investors predict that the market will go down in the near future, but investors do not want to sell their portfolio and buy it back because of high costs. To prevent risks, investors decided to open a short position with VN30 index futures contracts to protect their portfolio against the market decline.

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