Futures are contracts that are legally binding agreements, made on the trading floor of a futures exchange (or via an electronic screen dealing system), to buy or sell the underlying product at a specific time in the future for a specific price determined today.

A futures contract’s value depends upon and is derived from the underlying product or underlying instrument, such as commodity prices, interest rates, indices and share prices.

Futures markets have existed for centuries, although they were solely confined to commodities, especially agricultural products until recent times. Trading in futures was initiated by the needs of producers and consumers of commodities to protect themselves against any unfavorable price fluctuations in the underlying commodities. By using futures, they could effectively lock into a price agreed upon in advance and thus being able to control their production costs.

A futures contract can either require physical delivery of the underlying product or be cash settled. A cash-settled contract requires a cash amount to be paid on the contract expiration day which reflects the difference between the initial futures price and the price of the underlying product at settlement. Deliverable contracts, on the other hand, require the buyer to take delivery of the physical commodity and the seller to deliver. In most cases, actual delivery seldom takes place as the contracts are closed out prior to the expiration date. A trader who has bought a futures contract can close out by selling the same number and type of futures contract he bought and vice versa.

Today, the main purpose of futures trading is not to buy or sell the underlying product or instrument but to manage price risk. Corporations, institutions and individuals are exposed to risk of price fluctuations of various commodities and financial instruments affecting their business profitability or net worth. Futures market enable those exposed to these price risks to shift them to those who are prepared to take the risk.

Futures are now mostly traded on exchanges with standard contract specifications. The two parties to the contract do not necessary know each other and its respective clearing house would provide a mechanism which gives the two parties a guarantee that the contract would be honoured.

The following contracts traded on BMDB are currently offered by HDM Futures:

Equity Derivatives
FTSE Bursa Malaysia KLCI Futures (FKLI)
FTSE Bursa Malaysia KLCI Options (OKLI)
Single Stock Futures (SSFs)

Commodity Derivatives
Crude Palm Oil Futures (FCPO)
USD Crude Palm Oil Futures (FUPO)
Crude Palm Kernel Oil Futures (FPKO)

Financial Derivatives
3 Month Kuala Lumpur Interbank Offered Rate Futures (FKB3)
3-Year Malaysian Government Securities Futures (FMG3)
5-Year Malaysian Government Securities Futures (FMG5)
10-Year Malaysian Government Securities Futures (FMGA)