Tadawul trading screen
Tadawul plans to launch single stock futures (SSFs) on July 4 for the first tranche of listed companies, including Al Rajhi Bank, Saudi Aramco, Saudi National Bank (SNB), Alinma Bank, Saudi Basic Industries Corp. (SABIC), stc, Saudi Kayan Petrochemical Co., Saudi Electricity Co. (SEC), Almarai Co. and Saudi Arabian Mining Co. (Maaden).
SSF is an agreement, under which the buyer and seller complete a transaction at a specified date in the future. The SSF value is based on the value of underlying shares (underlying asset).
Key Facts:
- They are standardized futures contracts for single stocks that are considered underlying assets.
- SSF value is based on the value of underlying shares.
- SSF can be traded on Tadawul through opening an account with a brokerage registered for derivatives trading and depositing the required collateral.
- Margin requirements apply to both buyers and sellers.
- SSF allows investors to hedge their stock portfolios and allow traders to explore the price movement of the underlying stocks.
- SSF allows short-selling for investors without owning the underlying stocks.
- SSF performance is usually correlated to the performance of underlying stocks.
- SSF holders are not entitled to vote in the general meetings.
- SSF holders are not entitled to dividend distributions.
What is the difference between SSF and stock trading?
Both stocks and SSF are traded on Tadawul, and provide exposure to the movement of the underlying stock prices. SSF provides different investment opportunities for market participants.
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Difference between Stock and SSF Trading |
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Stock trading |
SSF Trading |
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By holding shares, investors own a stake in the relevant company. |
By owning SSF, investors do not hold ownership in the relevant company. |
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Maturity is permanent - there is no expiration date |
Maturity is limited, as the SSF has an expiration date |
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Investors should save 100% of the stock price to own it |
Investors are allowed to own the SSF by paying the initial margin only (a percentage of the total value of the SSF) |
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Investors should own the stock before selling |
Traders can take advantage of a lower price through short selling without owning the underlying asset |
Benefits of trading SSF:
- Allowing institutions and individuals to hedge their portfolios to reduce losses in adverse market conditions
- Allowing investors to develop a strategy focusing on the shares of a single company instead of a group of shares compared to index futures
- Allowing investors to access the market with less capital through the initial margin
- Increasing profitability by making use of the financial leverage
- Increasing the flow of liquidity towards the stock market
Risks
Derivatives carry risks similar to other financial market products. SSF may expose trading parties to certain risks, including market volatility and liquidity.
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