To The Moon

Speaker: Tom Yuen (YCK) shows what to check on a contract specification before placing a trade, and explains margin, margin calls and leverage in plain language.

[About the Speaker] Tom Yuen (YCK) has over 30 years of professional futures trading experience, beginning as an independent floor trader at SIMEX (now SGX-DT). A Computer Science graduate of the National University of Singapore, he is one of the trainers endorsed by SGX-DT to conduct futures trading programmes and has trained traders across Singapore, Malaysia and Thailand.

[The Hook] Before any chart, any setup, any prediction, YCK asks one question: do you know what you are actually trading? Every futures contract comes with a specification sheet, and he walked through the items that matter.

[The Contract Spec: What to Check]

• Contract size — how much one contract is worth. Exchanges pick a size meant to suit most participants: too big and smaller traders can't take part. In one index example from the session, a contract worth about S$53,000 that drops to S$50,000 costs the holder S$3,000, while the margin needed to hold it is only about S$2,000 or so.

• Tick size and tick value — the minimum price move and what it is worth. YCK's Taiwan index example: price moves in quarter-point steps worth US$10 each, so one full point is US$40. Multiply the price by the point value to get the contract's value.

• Margin — the deposit required (more below).

• Trading hours — many futures keep trading after the underlying stock market has closed, and some run through the night.

• Expiry — some contracts expire quarterly and others monthly, according to the exchange's schedule. Many are cash settled, meaning the final price is used rather than physical delivery. YCK's rule: don't hold a position into expiry unless you have a plan for it.

[Liquidity: The Check People Skip]

A contract can look fine on paper and still be hard to trade. YCK's advice is to look at actual market activity before choosing a contract, not just its size. Activity is often thinner outside daytime hours, partly because there is no cash market for arbitrageurs to trade against. When a market is thin, you can suffer slippage: you want to cut a loss at a certain level but there is no counterparty to take the other side at that price.

[Margin: A Deposit, Not a Price Tag]

Futures margin is a small fraction of the contract's value, typically in the region of 3% to 5%.

• Initial margin — what you put up to open the position.

• Maintenance margin — the minimum your account must keep as the market moves.

• Margin call — if losses take your account below the maintenance level, you must top up. If you don't, the broker closes the position and your loss is realised.

• Mark to market — gains and losses are calculated against the closing price each day. Some brokers monitor in real time and use automatic systems to close positions.

YCK's illustration: with a US$5,000 initial margin and US$2,000 maintenance margin, a US$3,000 move against you takes the account to the maintenance level. You either top up and keep the position, or it is closed and the remaining US$2,000 stays yours. He also stressed that more margin capacity doesn't mean you must use it: with US$20,000 and US$5,000 per lot you could trade four lots, but nothing says you have to.

[Leverage Cuts Both Ways]

Leverage comes from the word lever: a small deposit controls a much larger exposure. YCK's point is that it amplifies profits and losses equally, so it isn't dangerous by nature, but it is by misuse. In his words, leverage is good if you are good. Contract size should be one where a win makes you happy and a loss doesn't hurt your sleep, and exchanges now offer smaller contracts for that reason.

[Key Takeaways]

• Read the spec first. Size, tick value, margin, hours and expiry all shape your risk.

• Margin is a deposit, not the amount you can lose. Your exposure is the full contract value.

• Check liquidity. A thin market makes it harder to exit where you planned.

• Choose a size you can live with. Smaller contracts exist for a reason.

[Call to Action 🎯]

1. Open the contract specification of one futures product and note its size, tick value, margin and expiry.

2. Calculate what a one-tick move and a 1% move are worth for one contract.

3. Drop a comment: which contract size would you be comfortable with, and why?

Markets are always moving - and sometimes, the best move is knowing what works for you.

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