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SET50 Index Futures for Investors

Somsak Leelang, Ph.D.

Chief Executive Officer, Doctor Morya.

The Institute of Asian Private Derivative Investment.

February 2018

SSRN-id3564855

Abstract

This article is about futures derivatives. Derivatives act 2003 has allowed TFEX to be
established as a trading center for derivatives in Thailand since 2004. Getting to know the
futures based on the SET50 Index. The key characteristics of futures that are based on the
SET50 Index, a financial institution that is a member of TFEX, that accepts trading orders. The
benefits of trading futures based on the SET50 Index, including what to watch out for. Futures
based on the SET50 Index.

Keywords : Set50 Index, Set50 Index Futures, Derivative.

Introduction

If the investment in the Stock Exchange of Thailand. Many of you may be familiar with
investing in capital markets. The investment in ordinary shares. Investing in preferred stock but
nowadays, Thailand has expanded its investment channels. There are new financial products.
futures are an attractive investment option because they help streamline investors' ability to
make a profit on both the Bull Market and the Bear Market. Most of the settlement mechanisms
in the futures market do not actually deliver the goods between the parties. However, it will be
used to pay the difference in the transaction price called "Settlement to Cash Settlement. Some

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of you may think that investing in the Futures market is understandable. Actually, investing in
futures trading is seen in everyday life. Comparable to the example of a car subscription. At the
Motor Show every year. New car It is very popular. Very popular cars will be booked in bulk.
There are probably a number of people who can not afford the popular models. These people are
going to buy car tickets from people who can book. The price paid for the car is higher than the
price of the first sale of low-cost cars, some models are up to 5-10 times higher than the price of
the car has not expired. How much or how much depends on the preemption for the car for what
brand? What kind of people are popular? If it is a popular version, the price may be very high.
But if it is not popular people do not want. If you change your mind, do not buy a car. Selling a
car can not sell it. Or sell at a very low price. So people will buy. The value of the car. Derivative
as it is. It has no value in itself, but the value of the derivative is at "reference asset". It is similar
to the car registration to change hands in the car market itself. The price of the car prepaid is
increasing. Based on supply and demand in the automobile market. Those who bought a car
package hope to sell it at a higher price. Trading in TFEX gives investors the opportunity to "sell
before buy" or "buy before sell", thus making profit opportunities in two areas, for example,
from the example above. If investors expect that the price of the car will be higher. I can buy.
And wait to sell profit in the future. But if investors expect the price of the car will be lower. It
can come to "sell" before and wait "buy" to make a profit later. For the above reasons, TFEX is
trading. Derivatives is a new alternative product that strengthens investors' investment with
"Leverage" in the futures market. The derivatives traded and managed by the Thailand Futures
Exchange (TFEX) provides derivatives trading under the futures trading act 2003, with the
SET50 Index Futures being the first commodity to be traded on April 28, 2006.. Futures based

on SET 50 Index calculated from large registered shares. The Thai Futures Exchange (TFEX).

Know the SET50 Index Futures

SET50 Index Futures consists of two major components: futures contracts and SET50.
The two components together represent the SET50 Index trading in advance. Then send money
order in the future, such as 3, 6, 9 months or 12 months by sending orders through a broker. The
SET50 index is a point value of 200 baht (index multiplier = 200 baht). SET50 Index futures at
1,000 points and then sell at 1,010 points, resulting in 10 points (1,010 points - 1,000 points =
10 points). The profit is 2,000 baht (10 points x 200 baht = 2,000 baht). This profit is
calculated. No trading fees and VAT are deducted.

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Key Features of SET50 Index Futures

Contract Month

TFEX requires the contract month to expire 3 months in a row. And the last month of the
quarter (March, June, September, December), the next three quarters. February 2018 The sales
contract will be February 2018 / March 2018 / April 2018 / June 2018 / September 2018 /
December 2018.

However, the last trading day of the contract is nearing termination. Derivatives will be
traded immediately, such as the last trading day of the contract expiring in March 2018. Futures
contracts will be terminated at the end of March 2019. The longest life span is around 1 year.

Last Trading Day and Contract Acronym

The last trading day of each contract is the working day. Before the last business day of
the contract month. And the contract will be traded at 4.30 pm. Example of the last trading day
shown in Table 1. Contract acronyms show in Table 2.

Table 1 Example of the last trading day of the contract ending month of the SET50 Index
Futures

Month and Year Last trading Day

Feb-18 27-Feb-18

Mar-18 29-Mar-18

Apr-18 27-Apr-18

Jun-18 28-Jun-18

Sep-18 27-Sep-18

Dec-18 27-Dec-18

Credit : http://www.tfex.co.th/th/products/s50if-calendar.html

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Table 2 Examples of abbreviations for the SET50 Index Futures contract Single Order

Contract Month Year

Series Reference Month Code Year Code Last trading Day

S50F18 SET50 Index January F 2018 18 30-Jan-18

S50G18 SET50 Index February G 2018 18 27-Feb-18

S50H18 SET50 Index March H 2018 18 29-Mar-18

S50J18 SET50 Index April J 2018 18 27-Apr-18

S50K18 SET50 Index May K 2018 18 30-May-18

S50M18 SET50 Index June M 2018 18 28-Jun-18

S50N18 SET50 Index July N 2018 18 26-Jul-18

S50Q18 SET50 Index August Q 2018 18 30-Aug-18

S50U18 SET50 Index September U 2018 18 27-Sep-18

S50V18 SET50 Index October V 2018 18 30-Oct-18

S50X18 SET50 Index November X 2018 18 29-Nov-18

S50Z18 SET50 Index December Z 2018 18 27-Dec-18

Credit : http://www.tfex.co.th/th/products/s50if-calendar.html

Tick size

The minimum trading price is 0.1, which means that the price of the SET50 Index
futures traded can be quoted at no less than 0.1 point.

- Examples of prices can be identified as 1,000 points, 1,000.1 points and 1,000.5 points.

- Examples of unspecified prices are 1,000.12 points, 1,000.23 points and 1,000.35 points.

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Trading Hour
Divided into 4 periods as follows:

• Pre-open 9.15 - 9.45 am

• Morning session 9.45 -12.30 am.

• Pre-open 1.45 - 2.15 pm.

• Afternoon session 2.30 - 4.55 pm.

Daily Price Change (Price Limit)

Derivative Trading requires a ceiling price of not more than + 30% Ceiling Price and
Floor Price not less than -30% of yesterday's price. Daily Settlement Price of previous business
day as if previous business day. Clearing House (TCH) announced the daily settlement price of
1,000. The maximum trading price is no more than 1,300 points and the minimum trading price
is not less than 700 points.

Speculative Position Limit

Investors are not allowed to have total net positions in the SET50 Index Futures and
SET50 Index Options when calculating positions equivalent to the positions in the SET50 Index
Futures in any given month or month, totaling no more than 100,000 contracts.

Placement of trading securities SET50 Index Futures

Can be changed There are 3 parts of TFEX.

* Initial Margin

* Maintenance Margin

* Force Margin

Example of Initial Margin 11,020 baht per contract when the price is lower until the
maintenance margin of 7,714 baht. The investor must add the money back to the initial margin
on the next business day. If the investor does not bring more money. 3,306 baht will be
deducted from the Force Margin. Closing the contract automatically. Details of collateral are
provided in Table 3.

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Table 3 shows the collateral. From February 14, 2018 onwards.

Credit : https://www.nomuradirect.com/pdf/TFEX/TFEX_Margin&Comm.pdf

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Brokerage Fee

TFEX does not require broker fees. Therefore, let's take a look at the SET50 Index
Futures Brokerage Fee of Bualuang Securities Public Company Limited (Table 4). The fee is a
sliding scale by the number of contracts per day. (Not including VAT) for offline trading and
online trading from both buyer and seller.

Table 4 Brokerage Fee For offline trading and online trading.

Credit : http://www01.bualuang.co.th/DW/TFEX_Commission.pdf

For example

• Investors buy S50H18 1 contract per day. (Not including VAT).

For offline trading 87.1 baht and online trading 79.1 baht

• Investors buy 40 contracts of S50H18 contracts per day. (Excluding VAT).

For offline trading, it is equal to (25x87.1) + (15 x 67.1) = 3,184 baht (average 79.6 baht
per contract). Online trading is equal to (25x79.1) + (15 x 61.1) = 2,894 baht (average 72.35 baht
per contract)

Many investors would like to know. If we want to invest in SET50 Index Futures, how
will we return? What is the profit calculation? Is it like investing in common stock? The
following will show how to calculate the return on investment in the SET50 Index Futures. If the
investor expects the market to be bull market, see example 1 below.

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Example 1 Mr. Somsak, a customer of XYZ brokers, wants to buy 5 contracts of S50H18.
The XYZ broker assigns "Initial Margin" to trading SET50 Index Futures at 11,020 baht per
contract and defines "Maintenance Margin" 7,714 baht. Mr. Somsak needs to transfer money to
open an account at least 5x11,020 = 55,100 baht before sending an order.(See Table 5).

Table 5 shows examples of investments and improve earnings

Price at the Profit / Loss Transfer to / Balance in

Withdraw Account
DATE Recurring item end of the day ( 1 pt. = 200 baht) (baht) (baht)

19-feb-18 Open Long pos. S50H18 at 1,010 point 55,100

Improve earnings 1,020 +10,000 65,100

20-feb-18 Improve earnings 1,030 +10,000 75,100

21-feb-18 Improve earnings 990 -40,000 35,100

22-feb-18 XYZ Broker call money +20,000 55,100

From Mr. Somsak

Improve earnings 995 +5,000 60,100

23-feb-18 Close Short pos. S50H18 at 1,000 point +5,000 65,100

Description in table

February 19, 2018.

By the end of the day, XYZ brokers calculated the profit margin on Mr. Somsak's account
by taking Mark to Market with the price at the end of the day at 1,020 points, thus earning 10
points in the amount of 10,000 baht. 10 point x 1,000 baht) XYZ broker will transfer this profit
into Mr. Somsak's account. The balance of Mr. Somsak's account increased to 55,100 + 10,000 =
65,100 baht.

February 20, 2018 to February 21, 2018.

The movement of the index has both increased and decreased to 990 points, so Mr.
Somsak's account dropped to 35,100 baht (lower than the maintenance margin of 5 contracts is
7,714 x 5 = 38,570 baht). XYZ broker called for collateral. Add to the Initial Margin, which is to

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take into account another 55,100 - 35,100 = 20,000 baht, resulting in the Somsak account
increased to 55,100 baht.

February 23, 2018.

Mr. Somsak decided to close the S50H18 at 1,000 point, resulting in a total return of
65,100 baht.

From the example of Mr. Somsak Total Loss = Selling Price - Purchase Price

= (1,000 point - 1,010 point) x 200 x 5 baht

= -10,000 baht

(Or from the initial investment. Last investment = 55,100 + 20,000 - 65,100 = - 10,000 baht)

If any investor is interested in investing in the SET50 Index Futures, you can open a
SET50 Index Futures trading account with the member companies of TFEX. (See table 6).

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Table 6 List of 40 member companies of TFEX

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Credit : http://www.tfex.co.th/en/member/list.html

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Benefits of SET50 Index Futures

1. Benefits in risk management.

Futures traders can use futures contract For example, the risk of stock price fluctuations.
Stock Price Index Interest rate or exchange rate buying a Futures It's like a pre-purchase price.
Do not worry. If the price is higher than the purchase price. It will cost more to buy. At the same
time, the sale of futures is the same as the pre-sale price. There is no risk of falling asset prices.
As a result, revenue from the sale of assets is reduced. In the end, the investor will not be
affected in the bear market or if the impact is not very much. For example, Mr. Somchai risk that
his stock ZZZZ there is a chance that the price will fall. But he did not want to sell shares now.
Therefore, it may use the method of selling futures contracts based on stock ZZZZ to determine
the price. Sold in advance to prevent risk.

2. profitability

Trading SET50 Index Futures is the same as investing in 50 stocks at the same time. For
example, if we bought a stock of 100,000 baht, we would have to pay a total of Bt100. While
investing in the SET50 Index Futures, we would only pay an initial margin of not more than 10%
The value of the contract, such as if the futures are worth 100,000 baht, we pay the initial
margin of not more than 10,000 baht.

Have a high yield. Because trading futures It's like trading 50 stocks in the SET50 index
using a little investment. So if the SET50 index goes up or down, investors can profit. When we
bring the profit to the rate of return. For example, if you have a profit of 1,000 baht, as a
percentage of investment capital, 10,000 baht per futures contract, that is the rate of return. The
return on investment in futures is as high as 10%, while real stock trading may yield only 1%
yield. This is a feature that is important. Futures and other derivatives in terms of high leverage
or less investment, but with equal or greater returns.

Make a profit both in the bull market and bear market because futures trading is just a
futures contract. This is an agreement that today will buy or sell. But payouts will actually take
place in the future. So if we expect the market to be in the bear market, we will be able to sell
futures. To make a profit, even though we have not bought any futures before, the SET50 Index
Futures will provide investors with more flexibility. Easy to analyze. The SET50 Index Futures
trading is like buying or selling 50 stocks at one time. This is an evaluation of the market
movement. Overall, Futures trading decisions can be analyzed based on market overview.

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Therefore, investors who hold shares of the SET can use the SET50 Index Futures to manage the
risk of change in return on equity investments. While general investors can use this tool as an
alternative investment.

Notice : Investing in SET50 Index Futures

1. Maintaining insurance funds. In futures trading Although we will put less money. But
it will take profit every day. If your insurance premium is lower than the Maintenance Margin
level, we will be called a "call margin" to get your money back to the brokerage level. However, if
we can not "call margin", the broker will close our trading status. To help prevent investors from
losing too much.

2. Futures are Limited Unlike non-expired shares. If the buyer and seller hold the futures
until the maturity date. It has a duty to pay each other until the date. If the buyer and seller do
not want to hold futures until the maturity date, they must close their existing buy or sell status
before that date. If you have the status to sell, then buy the futures to close the status. Do not
forget that it must be the same month. Otherwise, instead of shutting down, it becomes a status
change.

3. The high leverage is the return on investment in futures that is higher than the return
on equity. We will get higher returns. However, if we make a mistake, we will lose a higher rate
as well. So investors should know the level of risk that they accept before investing in futures.
Investors should keep an eye on their investment performance regularly. Investing in the SET50
Index Futures will be very beneficial. Investors who are well prepared before the actual trading
in the TFEX. However, this may be counterproductive to investors who are not prepared.

Conclusion

Investing in Derivatives referring to the SET50 Index Futures, despite the high returns.
It is more satisfying to investors than investing in some stocks in the stock market. It is a high
risk and volatile investment, as well as a leverage of up to 10 times the amount of money
insured. So investing in this channel. Investors should exercise extreme caution. Investing
because it is difficult for us to predict future trends. If the investor intends to study the
information in the investment well before the investment. Investors will feel valued and happy
to invest in TFEX forever.

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References

Bualuang Securities Public Company Limited (BLS). (2018). TFEX Commission For Retail
Investor. Available from : http://www01.bualuang.co.th/DW/TFEX_Commission.pdf

Capital Nomura Securities PCL. (2018). Brokerage fees Feb-18. [online]. Available from :
https://www.nomuradirect.com/pdf/TFEX/TFEX_Margin&Comm.pdf

Channarong Chaiphat. (2006). SET Index and SET 50 Index Futures. Institute of Research
Promotion and Innovation Development. Bangkok University. Bangkok.

Sirirat Thammasiri. (2009). Trading Volume and Returns Relationship in SET50 Index
Futures . Master’s thesis in Finance (International Program), Thammasat
University, Bangkok.

Thailand Futures Exchange Public Company Limited (TFEX). (2017). Summary of SET50
Index Futures Contract Specification. [online]. Available from :
http://www.tfex.co.th/en/products/s50if-spec.html

Thailand Futures Exchange Public Company Limited (TFEX). (2017). TFEX has 40 Full License
Member. [online]. Available from : http://www.tfex.co.th/en/member/list.html

Thailand Futures Exchange Public Company Limited (TFEX). (2018). Margin rate as
announced by Thailand Clearing House (TCH). [online]. Available from :
http://www.tfex.co.th/en/products/s50if-margin.html

Thailand Futures Exchange Public Company Limited (TFEX). (2018). SET50 Index Futures 's
Trading Calendar. [online]. Available from : http://www.tfex.co.th/en/products/s50if-
calendar.html

Thailand Futures Exchange Public Company Limited (TFEX). (2018). The Summary of SET50
Index Futures Trading Procedure. [online]. Available from :
http://www.tfex.co.th/en/products/s50if-edu.html

The Stock Exchange of Thailand (SET). (2018). notification regarding margin rate. [online].
Available from :
https://www.set.or.th/tch/en/derivatives/news/1_MarginRate_080218En.pdf

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