The FM70 Futures Contract

Featured in Smart Investor Magazine – Oct 2018 issue


Retail investors interested in participating in the derivatives market will find the mid-cap FM70 the ideal product to start with.

Bursa Malaysia Derivatives Berhad (BMD), the derivatives arm of Bursa Malaysia Berhad has just introduced another unique product to their equity derivatives space. Called the Mini FTSE Bursa Malaysia Mid 70 Index Futures Contract or FM70, it comes packaged with plus-points especially geared for retail investor participation. Smart Investor had a chat with Kenanga Futures Sdn Bhd, its broker, to find out why the FM70 is so appealing.

Smart Investor (SI): Can you tell us about the Mini FTSE Bursa Malaysia Mid 70 Index Futures Contract (FM70), why do you call it a ‘mini’, and how is it specifically designed for retail traders?

Kenanga Futures (KF): The FM70 is a newly-launched Ringgit Malaysia denominated equity index futures contract by Bursa Malaysia Derivatives Berhad (BMD) which tracks the FTSE Bursa Malaysia Mid 70 Index (FBM Mid 70) as its underlying instrument.

The FM70 is considered a mini contract because it represents a fraction of the value of a corresponding standard futures contract. For example, the notional value of a standard-sized futures contract such as the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) futures contract, or commonly known as FKLI, is RM50 multiplied by the index value of the FBMKLCI value whereas for the FM70, the notional value would be RM2 multiplied by the index value of the FBM Mid 70.

Additionally, the current initial margin requirement for one FM70 contract is RM800, which is lower than the current initial margin requirement for one FKLI contract at RM4,000.

With the lower initial margin requirement, this mini contract provides a low cost of entry for all traders, making it more appealing for retail traders.

Smart Investor (SI): Can you tell us the difference between the Top 30 stocks of the FBMKLCI and the mid-cap FM70 and why FM70 simplifies things for the retail investor?

Kenanga Futures (KF): FBMKLCI consists of the top 30 stocks listed on Bursa Malaysia while FBM Mid 70 consists of the next 70 largest stocks listed on Bursa Malaysia that meet the FTSE Russell eligibility requirements. The constituents and the sectoral distribution of the constituents in both indices are different.

One of the advantages of trading an index futures is that instead of buying or short-selling all the individual stocks in a particular index, one can get the exposure to the index directly just by trading a single futures contract. With the introduction of the FM70 contract, it makes it easier and more accessible for traders to gain exposure to the Malaysian mid-cap stocks with just one contract.

Historically, retail participants account for 20% of the market volume for FKLI. With the lower cost of entry for FM70, it could be more appealing for retail participants to consider this futures contract.

Return (%) Annualised Volatility (%)
2.6 12.8 9.6 8.8
0.4 30.7 13.0 11.1

Smart Investor (SI): Is this product the first of its kind from Bursa Malaysia Derivatives? What is the reason behind its creation?

Kenanga Futures (KF): Yes, it is the first mini futures contract by BMD. Historically, domestic retail participation in BMD made up an average of 20% of the overall market volume. The creation of this product with a lower cost of entry is a timely and strategic move by BMD as it will make the derivatives market more accessible to a wider retail client base.

The government, along with Securities Commission Malaysia and Bursa Malaysia, had also introduced several initiatives in recent years to promote greater visibility and interest in the mid-cap segment of the market, which include the launch of the Mid and Small Cap Research Scheme, launch of FTSE Russell MidS Cap Index and also the allocation of RM3bil by government-linked investment companies (GLIC) to be invested in potential mid and small cap listed companies to enhance the liquidity and interest for these stocks. Hence, the introduction of the FM70 futures contract is not only in line with these objectives, but a well-suited addition to complement these initiatives.

Smart Investor (SI): Apart from simplicity and low entry margin, why else is it a good option to trade FM70? Is there more volatility in the FM70 stock futures index as opposed to the Top 30? How does volatility work to an investor’s advantage and are there any risks involved?

Kenanga Futures (KF): If we were to look at the historical return and volatility of both the FBMKLCI and FBM Mid 70 indices as shown in Table 1, we can see that FBM Mid 70 tends to be more volatile and has generated a greater cumulative return over a three-year period. The average daily range for the FBM Mid Cap 70 is also wider, providing more trading opportunities for traders who are interested in intraday trading.

Depending on the trader’s own risk appetite and trading strategy, volatility can represent an opportunity to make money. In fact, there are some experienced speculative traders who employ complex trading strategies based on volatility.

However, we would advise those who are new to derivatives to always develop sound product and market knowledge prior to trading and build a trading plan with a stop loss protection strategy.

Smart Investor (SI): What is the contract size of the FM70? What is the initial investment margin to start trading? Are there other incentives to encourage retail investors to participate?

Kenanga Futures (KF): The FM70 contract is valued at RM2 per index point. For example, if FM70 is trading at 15,000 points, the notional value of one (1) FM70 contract will be worth RM30,000. To begin trading, the trader will only need an initial margin of RM800 per contract. Though the lower cost of entry may be appealing, traders need to be reminded that listed derivatives products are based on highly leveraged margin trading and carry a very high degree of risk if you do not monitor your positions.

In conjunction with the launch, BMD is offering 6 months’ fee holiday, i.e., waiver of Exchange Levy and Clearing Fees from 27 Aug 2018 to 26 Feb 2019 to all participants.

Smart Investor (SI): FM70 can be traded on its own but what are the benefits of buying both the FKLI and the FM70 together?

Kenanga Futures (KF): A trader can get joint exposure to the top 100 stocks listed on Bursa Malaysia by just trading these two contracts. For more experienced traders, they may study the historical correlation between FKLI and FM70 to capitalise on changes to the spread between the two stock index futures.

Smart Investor (SI): What is the best futures trading technique to use for FM70?

Kenanga Futures (KF): Every trader has to do his or her own research and back test the trading strategies to develop those which he or she is most familiar with. There are plenty of resources provided by BMD and also by the brokers which the general public can always refer to.

Smart Investor (SI): Can you tell us about the contract months of the FM70 and trading hours?

Kenanga Futures (KF): A trader can trade FM70 for spot (current) month, the next month and the next two calendar quarterly months. The calendar quarterly months are March, June, September and December.

The trading day / trading hours are from Monday to Friday, first trading session from Malaysian time 8:45am to 12:45 p.m., and second trading session from Malaysian time 2:30 p.m. to 5:15 p.m.

For more details on FM70, you may refer to the contract specifications that are provided on Bursa Malaysia’s website.

 Smart Investor (SI): Where can interested parties learn more about trading FM70? Where can they get advice and how can they get started?

Kenanga Futures (KF): To get started, you need to open a listed derivatives trading account with a licensed listed derivatives broker such as Kenanga Futures Sdn Bhd. To find out more on FM70 or any information related to futures trading, please visit Bursa Malaysia’s website ( or speak to our team of experienced dealers who are always ready to assist you in your trading journey.

You may contact us at +603 2172 3888 or email us at [email protected]

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