FAQ - Futures Trading<
Q. Is there any truth to stories I have heard of some investors being wiped out in futures?" 

A. Yes, it can happen; however, it is usually because the investor tries to make a killing and exposes himself or herself to considerable risk--more risk than the investor is in a position to handle. For example, speculating in a highly volatile counter with too little capital could be an expensive mistake. You could lose everything you started with, and then some. Like any business transaction, the futures markets can be approached with reckless abandon, or with common sense and good business judgment.

Q. Is there any truth to stories I have heard about people becoming millionaires on small amounts of capital in futures?
A. Yes, there have been such cases (although not as frequent as they might seem). Investors have turned RM5,000 into RM20,000, RM100,000 or more. The potential for large profits is inherent in the futures markets because of leverage; however, where there is an opportunity for large profits, there is a corresponding risk of large losses.

Q. Do most clients lose money?
A. Yes. There are many reasons for that. 

Q. Is there any chance someone would try to deliver 25 tonnes of crude palm oil to my doorstep if I didn't sell in time?
A. This is a standard joke in the industry. Delivery takes place in the form of a warehouse receipt for the physical commodity. When appropriate, the delivery process begins with a notice of intention to deliver, not with delivery of the physical commodity. Also, before delivery can occur, payment or financing of the total contract value must be arranged. Then the brokerage firm must issue delivery instructions, including method of shipment, place of delivery, and delivery date; therefore, accidental delivery to your doorstep can't happen. As brokers, of course we will make sure that you will offset all your trading positions before the expiry date.

Q. How can you sell what you don't own in futures?
A. When going short, you are promising to make delivery of the commodity at some future date. You don't need to have the physical commodity or a contract for the commodity to be able to go short (sell). Often, it is easier to make money on the 'short' side because prices tend to move more sharply and quickly when declining than when rising. Also, unlike the stock market, you don't have to wait for an up-tick before going short." 

Q. How much time do I have to spend each day if I trade futures?
A. From no time to several hours, depending on the depth of your involvement. Unless you are prepared to make a thorough study of the markets you plan to trade, you may do better trading with the help of a good brokerage firm and broker. By the way, try us :-).

Q. To try to predict prices, should I use news, like a drought, or those complicated looking price charts?
A. As you may know, fundamental analysis is concerned with basic supply and demand information, such as agricultural reports, weather, etc. At different times, such information impacts the market differently. Technical analysis is concerned with price action such as trading volume, open interest, and price movement. Advocates of a strict technical approach argue that market price is the best indicator in any situation because it includes expectations and fundamentals. Many traders use fundamental analysis to determine the direction of the market, and technical analysis to time their entry and exit. You may want to learn more about the two approaches before deciding what works best for you.

Q. How safe is my money? Are the futures markets financially sound? 
A. Absolutely, unequivocally 'yes!' MDCH guarantees every transaction on its exchange. MDCH is separate and independent from the exchange. MDCH has never defaulted on any contract. 

Once a trade has cleared, the MDCH interposes itself as a guarantor of every contract, acting as a buyer to every seller and seller to every buyer. This establishes itself as the payment and collection agency for its members and, through them, their clients. 

Each clearing firm must pay MDCH in full for each day's market activity before the market opens for trading the next day. Based on the previous day's settlement prices, payments are made by wire transfer. Each clearing firm begins each new day of operation without debt to MDCH. In this way, debt exposure is limited. Clearing firms, in turn, collect from or pay (credit) their clients daily. This is how MDCH effectively guarantees performance of every cleared contract. Their obligations are backed by guaranteed funds deposited by the clearing firms, by MDCH's own capital, and by its power to make assessments on its clearing member firms. In addition, federal regulations require clients' margin funds to be segregated from the other (operating) assets of any firm licensed as a futures broker. No client of any clearing member has ever lost money due him or her.

Note: MDCH = Malaysian Derivatives Clearing House.
Clearing firm = Brokerage house eg. Okachi (M) Sdn. Bhd.

Q. Are there any trading rules I should follow?
A. MDEX, SC, brokerage houses and educational firms have published materials that include excellent guidelines. Our Trading System - Resam Padi Trading System should provide some trading rules you can refer to. 

Q. How much does it cost to open an account? 
A. Different brokerage houses have different minimums. You may be able to invest in a futures for as little as RM5,000 or RM10,000. There are many professionals who suggest that you should not open a speculative trading account with less than RM25,000, although many firms accept accounts for less. Honestly speaking, there is no amount too little or too much. Read our "Money Management" as attached in "Our Trading System". By the way, Okachi (M) Sdn. Bhd. prefers an initial trading account of not less than RM 5,000. For some technical and financial reason, we recommend RM 10,000. Read page on "Our Recommendation" as attached. 

Q. What's a good way to start?
A. You may want to select a commodity you are comfortable with, perhaps a product related to your business or where you live, or simply one or two you find interesting. Then you may want to try paper trading (practice trading). However, paper trading may not be a good indicator of how you would do with actual trading, because the pressure of real money at stake is absent. Don't be in a hurry to trade. If you don't have enough risk capital to trade properly, wait until you do. The markets and opportunities (for risk and reward) will be there. . . whenever you're ready. 

Q. I am new to futures trading - wondering if you had any advice on openinng a Brokerage Account with a reliable firm. 
A. You need to provide more info about what you will trade, how much time you can commit etc. Our advice is to refer to MDCH or Bursa Malaysia or SC. 

Q. Isn't futures trading just gambling?
A. No. The futures markets permit producers or owners of commodities to transfer the risk of growing or owning these products to futures speculators/investors. Those who use the futures markets to transfer risk are called hedgers. Speculators assume the risk of price change that hedgers seek to avoid. The speculators are seeking an opportunity to profit. When a speculator assumes price risk, the hedger can concentrate on the more controllable aspects of his business. Futures speculation is unlike most investments because price movements are magnified by the leverage resulting from deposit requirements usually representing only 5 to 10 per cent of the full contract value. Additional margin deposits may be required, depending on market fluctuations. Price changes affecting the hedgers' physical position can be offset by comparable price changes in the futures position.

Q. If trading is gambling, isn't it immoral?
A. Trading is gambling in the sense that speculators are speculating. It is very difficult to differentiate the real difference between gambling and speculating but trading is definitely not gambling. One thing for sure, there is a big difference between gamblers and speculators. Gamblers do not give any economic function but speculators do. 

Q. How do speculators have the economic function?
A. Futures trading is a financial tool which is used by hedgers to hedge into the market. Without futures trading,  hedgers, be it the commodity users or producers are open to the global risk in supply and demand situations. Speculators help them in providing liquidity in the market thus making the market works efficiently. 

Q. Does getting lucky apply in trading?
A. Luck has a lot to do with everything. Some people are lucky enough to be born smart and some people are even smarter enough to get lucky. 

Q. You mean, you need luck in order to make money trading futures?
A. We apply a trading system in trading. A system we called Resam Padi Trading System. The system requires Money Management, Strict Trading Disciplines and Technical Analysis. The technical analysis has nothing to do with predicting market next move. We use the analysis to determine the strengths and the weaknesses of the prices. The stonger they are, the better probability the next move is moving upward, likewise goes to when the prices are weakening. Once technical analysis is applied, it is actually about pure guess.  We don't mind taking chances but we never leave anything to chance. That's where money management and trading disciplines come into picture.

Q. What kind of knowledge required in futures trading?
A. Definitely you need to know the mechanism of futures trading - which market you trade, what commodities are you trading, the initial margins required, the minimum price fluctuations, the tick values, the market orders and executions. You should learn money and risk management. You should read books and conclude that the market is random and the market is always right. Learn technical analysis so that you know what the market is doing, either trending or congesting or moving sideways or ranging. Learn self-discipline or whatever the mentality required to be successful. Last but not least, learn to be as healthy as possible. 

Q. Is trading needs a lot of hardwork? 
A. Doing the preliminary trading plan is easy but you cannot be biased on the market. Since that some markets are correlated, the preliminary trading plans has to be re-written before the market opens. Trading during trading hours is a lot more easier because all you have to do is to execute your plan. 

Q. Is Trading another "get-rich-quick" scheme? 
A. No. Trading requires skills and knowledge. 

Q. How do people executing futures trades electronically? 
A. Personally we don't have any experience online trading. We are sorry. You can check through the website. Search for Xtraders, Quansi etc.