expand/collapse risk warning

CFDs come with a high risk of losing money rapidly due to leverage. 71% of accounts lose money when trading CFDs with this provider. You should understand how CFDs work and consider if you can take the risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

71% of retail investor accounts lose money when trading CFDs with this provider.

Index Trading

OMX semester: A comprehensive guide for beginners

OMX semester: A prominent building in Sweden displaying a sign that reads

Have you ever heard of semesters in derivatives trading? They refer to the expiration dates of contracts and play a crucial role in managing risk and making profits in financial markets. Semesters can take many forms, from quarterly to monthly or even daily, and are used in contracts such as futures and options. Understanding how semesters work is a key part of trading derivatives, and can help traders stay ahead of the curve in an ever-changing market.

What are forwards and futures?

In finance, there are two main types of semesters: forwards and futures. The key difference between the two is the timing of the settlement process, which is the profit or loss made by the holder and issuer of a futures contract during its term.

Futures contracts
Commonly based on an underlying index, are settled on a daily basis. This means that the profit or loss is calculated and equalized between the buyer and seller at the end of each trading day. For example, if you hold a term on Sweden 30 futures and the underlying index increases in value, you will receive a deposit in your account equal to the positive difference. Conversely, if the index falls in value, money is withdrawn from your account.
Forwards
On the other hand, are only settled on the end date of the contract. This means that the buyer and seller pay the difference between the market price and the agreed-upon futures price at the end of the term. Final settlement can occur through either cash or physical delivery of the underlying asset, depending on the type of contract. For example, grain or oil futures are settled through physical delivery, whereas Sweden 30 futures are settled in cash.

Overall, both forwards and futures are important tools for hedging against price fluctuations and managing risk exposure in the financial markets. However, they differ in terms of their settlement processes and can be used in different contexts depending on the needs of market participants.

How do semesters work?

Exchange-traded futures often have multiple underlying assets per contract, with each contract typically comprising 100 underlying assets.

For example, a position in the Sweden 30 term of 1 contract of 1550 would correspond to a market position of SEK 155,000.

However, you don't need to pay this amount upfront, as futures contracts don't require an initial payment. Instead, you are required to maintain a security deposit to fulfill your obligations and cover the risk of the underlying asset decreasing in value during the term. This deposit is a percentage of the value of your position, and changes with fluctuations in market value.

For instance, if the security requirement is 10%, a deposit of SEK 15,500 would be reserved in your account.

To trade futures contracts, you buy or sell them on the stock market through an order book where buyers and sellers enter their orders. The order book allows buyers and sellers to meet and conclude trades. Understanding the mechanics of trading and managing risk with semesters is key to improving your trading in financial markets.

Capitalise on volatility in index markets

Take a position on moving index prices. Never miss an opportunity.

Sign up

What does counterparty risk mean?

In futures trading, counterparty risk refers to the risk that the party on the other side of a futures contract may default or fail to meet their contractual obligations. When you enter into a futures contract, you are essentially making a deal with another party. The other party is your counterparty in the transaction, and there is a risk that they may not be able to fulfil their end of the deal.

For example, if you buy a futures contract, you are betting that the price of the underlying asset will go up, and your counterparty (the seller of the futures contract) is betting that the price will go down. If the price does go up as you predicted, you will make a profit, and your counterparty will be obligated to pay you. However, if your counterparty defaults or fails to meet their obligations, you may not receive the payment you are owed, and you may suffer financial losses.

To reduce counterparty risk in futures trading, exchanges typically act as intermediaries between buyers and sellers, and require both parties to post margin (collateral) to cover potential losses. This margin helps to ensure that both parties will fulfill their obligations, even if the price of the underlying asset moves against them. It is important for traders to carefully evaluate the creditworthiness of their counterparty before entering into any futures transaction, and to monitor their counterparty's financial stability throughout the life of the contract.

How much does it cost to trade futures?

When you decide to trade futures, there are some costs you need to consider, such as brokerage and clearing fees.

The brokerage fees vary depending on the broker you choose to trade with, and it's advisable to compare the prices of different brokers to find the most suitable one for you.

On the other hand, the clearing fee is fixed and the same for all exchange members. You will have to pay both brokerage and clearing fees for both buying and selling semesters. It's important to be aware of these costs before you start trading so that you can factor them into your overall trading strategy.

Trading with OMX futures

Trading with OMX futures is a great way to engage in day trading. This is because they usually have a higher turnover than share futures. The OMX index currently has the best futures turnover. While there are also futures on the OMX Cap index, the turnover is lower.

OMX futures track the OMX value, but unlike stock futures, they do not have an underlying commodity. Instead, a cash final settlement takes place on the closing day. The value of a futures contract is determined by multiplying the index value by 100.

  • For instance, if the OMX value is at 1024, the value of the contract is SEK 102,400. For every point that the index changes, the value of the contract changes by SEK 100. Thus, if you have a position of 5 OMX futures, the value of your position will change by SEK 500 per point.
  • If you buy an OMX future at 1024, you are obligated to buy OMX for SEK 102,400 on the closing day. If the OMX value rises above 1024, you will earn SEK 100 for every point the value increases. Conversely, if the OMX value drops below 1024, you will lose SEK 100 for every point it decreases. You can make profits in both an upward and downward trend by buying or selling OMX futures, depending on your market expectations.
  • When you sell an OMX future at 1024, you are obliged to sell OMX for SEK 102,400 on the closing day. If the OMX value falls below 1024, you will earn SEK 100 for every point it decreases. If the OMX value rises above 1024, you will lose SEK 100 for every point it increases.

Futures transactions involve an agreement today, with delivery and payment taking place at a fixed date in the future. Each party involved in the transaction has a legal responsibility to fulfill the agreement.

If you have bought or sold an OMX future, you have two options: closing or netting.

  1. Closing occurs on the closing day, while netting involves selling or buying a term in the same series at the current market price before the end date.
  2. By netting, you can lock in profits or losses before the closing day.

To trade in futures, you must sign an option agreement with OMX through a broker that offers futures trading. Futures trading incurs no costs other than transaction costs, and there are no premiums involved.

OMX futures trading eliminates company risk, allowing you to trade primarily in market risk. You are not at the mercy of how individual shares perform, and it is usually possible to trade OMX futures regardless of the market situation.

Trading OMX futures is similar to trading in any security. Strategies such as running intraday charts on the underlying commodity/index can be appropriate when trading in futures and options. Additionally, the OMX index tends to be influenced by US100, so monitoring intraday charts on both can be advantageous during trading.

Summary

Derivatives such as futures trading can be a powerful tool for investors and traders looking to profit from market movements. While it may seem daunting at first, with the right education and guidance, anyone can learn to trade derivatives. Futures trading in particular, with its ability to provide profits in both upward and downward markets, offers a unique advantage to those looking to diversify their investment portfolios.

If you are interested in derivatives trading, now is the time to take action. Start by educating yourself on the basics of futures trading and the various strategies that experienced traders use. Or you can start by first determining what your trading style is. Practice trading with virtual money on a demo account before risking any real capital. Also, seek out a reputable broker who can guide you through the process and provide valuable insights. There are also day trading strategies to get you started.

Not investment advice. Past performance does not guarantee or predict future performance.