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SSFs can be used to initiate positions tied to a specific company that
are neutral to changes in the overall market. This is done by spread
trading the SSFs against the Kuala Lumpur Composite Index Futures
(FKLI). Bullish corporate events can be exploited by selling FKLI and
buying SSF, whilst negative corporate events can be exploited by
buying FKLI and selling SSF. In reverse, you can also remove the
effect of a single stock from a broader index – for instance, turning
the Kuala Lumpur Composite Index (“KLCI”) 100 stocks into the
KLCI 99. A hedge ratio is used to determine the proper weighting to
achieve a neutral spread between a stock SSF and an index future.
What are the risks of trading SSFs?
Leverage magnifies the effect of a price change and may also result in
significant losses if the market moves against your SSF positions. An adverse
price move may lead to a margin call, requiring an investor to send more
money. If you do not maintain your margin balances, your SSF positions may
be closed out at a loss.
What are the things to note when trading SSFs?
Monitor your positions
Trading SSFs can be risky, so you need to check your positions regularly
as part of your risk management strategy.
Apart from collecting Initial Margin as a form of collateral, your broker
will also ‘mark-to-market’ or revalue your SSF portfolio at the end of
each business day based on settlement prices determined by Bursa
Malaysia. If your position generates a loss, you will be asked to replenish
your account within a stipulated time. Failure to do so may result in
forced liquidation of your positions. Conversely, if your position results in
a profit, you may be allowed to withdraw excess funds from your trading
Effect of certain corporate events
When corporate events such as bonus or rights issues, and stock splits
in the underlying stock occur, all open positions will be ad