Tadawul trading screen
Saudi Exchange (Tadawul) plans to launch Single Stock Futures (SSFs) contracts tomorrow, July 4.
SSFs are agreements between a buyer and seller who are obliged to complete a transaction at a predetermined future date. These contracts are valued at the underlying asset (the company's stock) and are settled in cash.
The first tranche of SSFs contracts to be launched includes the following Tadawul-listed companies: Al Rajhi Bank, Saudi Aramco, Saudi National Bank (SNB), Alinma Bank, Saudi Basic Industries Corp. (SABIC), stc, Saudi Kayan, Saudi Electricity Co., Almarai Co. and Saudi Arabian Mining Co. (Maaden).
Tadawul focused on the largest companies in the Kingdom by market cap that garner local and international interest, along with other considerations, to ensure a fair and orderly market.
Below are illustrative examples of trading SSFs:
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Comparison Between Trading on Stocks and SSFs |
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Buying stocks of ABC Company |
Buying SSFs of ABC Company |
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Aug. 2, share price at SAR 25 |
Buy 4,000 shares at SAR 25 apiece |
Buy 40 SSFs at SAR 25 apiece |
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Shares’ value is SAR 100,000 |
Total SSFs’ value is SAR 100,000 (40 * 25 * SSF multiplier of 100)* |
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Amount paid = SAR 100,000 (the trader pays 100% of the value of shares) |
Amount paid = SAR 20,000 (the trader pays only the initial margin, which is 20% of the SSF value in this example)** |
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Sept. 4, share price rose to SAR 27 |
Selling 4,000 shares at SAR 27 apiece |
Selling 40 SSFs at SAR 27 apiece |
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Sale value is SAR 108,000 |
Total SSFs’ value is SAR 108,000 (40 * 25 * SSF multiplier of 100) |
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Amount received = SAR 108,000 (the trader receives 100% of the shares’ value) |
Amount received = SAR 20,000 + SAR 8,000 (the trader recovers the initial margin and the difference in value between buying and selling) |
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Yield |
Shares’ value at the time of purchase = SAR 100,000 |
Total SSFs’ value at the time of purchase = SAR 100,000 |
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Amount paid by the trader = SAR 100,000 |
Amount paid by the trader = SAR 20,000 |
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Profit = SAR 8,000 |
Profit = SAR 8,000 |
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Profit Margin = 8% (8,000/100,000) |
Profit Margin = 40% (8,000/20,000) |
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The minimum initial margin requirement is determined by a clearing company and varies according to the customer category |
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*The value of one of ABC Company's SSF equals: SSF multiplier of 100 * SSF price of SAR 25 per share = SAR 2,500
**Initial Margin (20%) is SAR 500
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Portfolio Hedging by 50% (Illustrative Example) |
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Al Rajhi Bank's share portfolio |
Hedging through SSFs of Al Rajhi Bank |
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June 1, share price at SAR 99 |
Buy 2,000 shares at SAR 99 apiece |
Short selling of 10 SSFs at SAR 99 apiece |
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Shares’ value is SAR 198,000 |
Total SSFs’ value is SAR 99,000 (10 * 99 * SSF multiplier of 100) |
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Amount paid = SAR 198,000 (the trader pays 100% of the shares value) |
Amount paid = SAR 10,395 (the trader pays only the initial margin, which is 10.5% of the SSF value in this example) |
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June 22, share price fell to SAR 84 |
Selling 2,000 shares at SAR 84 |
Buy 10 SSFs at SAR 84 apiece |
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Sale value is SAR 168,000 |
Total SSFs’ value SAR 84,000 (10 * 99 * SSF multiplier of 100) |
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Amount received = SAR 168,000 (the trader receives 100% of the value of shares) |
Amount received = SAR 10,395 + SAR 15,000 (the trader recovers the initial margin and the difference in value between buying and selling i.e., 99,000 - 84,000) |
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Yield |
Shares’ value at the time of purchase = SAR 198,000 |
Total SSFs’ value at the time of purchase = SAR 99,000 |
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Amount invested by the trader = SAR 198,000 |
Amount invested by the trader = SAR 10,395 |
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Loss = SAR 30,000 |
Profit = SAR 15,000 (99,000 - 84,000) |
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Loss Margin = 15% = (30,000/198,000) |
Return on invested amount = 144.3% = (15,000/10,395) * (100) |
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In this case, when the portfolio is hedged by 50%, the trader's loss declines from SAR 30,000 to SAR 15,000 |
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