Futures Exchange (TFEX) is a subsidiary of the Stock Exchange of Thailand (SET)
and was established on May 17, 2004 as a derivatives exchange. TFEX uses the
same price/time priority rules as the equity market for order matching which refers
to how orders are prioritized for execution. Orders are first ranked according
to their price; orders of the same price are then ranked depending on when they
were entered. TFEX is allowed to trade Futures, Options and Options on Futures
where the permitted underlying assets are equities(i.e., index and stocks), debt(i.e.,
bonds mortgages and interest rate), commodities(i.e., gold, silver and crude
oil) and others(i.e., exchange rate and other as may be announce by the SEC).
finance, a derivative is a financial instruments. Futures contracts, forward
contracts, options, swaps, and warrants are common derivatives. A futures
contract is a derivative because its
value is affected by the performance of the underlying contract. A stock option
is a derivative because its value is derived from that of the underlying stock.
While a derivative’s value is based on an asset, ownership of a derivative
doesn’t mean ownership of the asset. Derivative can be used for a number of
purposes, including insuring against price movements (hedging), increasing
exposure to price movements for speculation, etc.
Derivatives allow investors to earn large returns from small
movements in the underlying asset’s price. Investors could lose large amounts
if the price of the underlying moves against them significantly, because of the
use of leverage, or borrowing. This is similar to a margin
account when trading stocks.
An initial margin will need to be deposited before each trade. Futures price
will generally change daily, the difference in the prior agreed-upon price and
the daily futures price is settled daily. The exchange will draw money out of
one party’s margin account and put it into the other’s so that each party has
the appropriate daily loss or profit. If the margin account goes below a
maintenance margin level, then a margin call is made and the account owner must
replenish the margin account.
are required to use the trading name to facilitate trading and adhere to
universal principles. The name of the product will contain initials, month and year
of maturity. For example, s50z17, the first two alphabets “S50” mean a SET50
Index Futures product that traded on TFEX. SET50 Index was launched in 1995 and
it is the first large-cap index of Thailand to provide a benchmark of
investment in the Stock Exchange of Thailand. It is calculated from the stock
prices of the top 50 listed companies on SET in terms of large market
capitalization, high liquidity. The last three alphabets “z17” are month and
year of maturity which code “z” use for December (i.e.,
h for March, m for June and u for September) and “17” denoted year 2017.
A wise focus of any investor of
technical analysis is to study indicators that make sharper entry and exit
points in his or her trading. The Relative Strength Index (RSI) by J. Welles Wilder
Jr. is one of the most popular technical indicators. We believe RSI can be improved by using
volume to weight the index. Classic market tops are characterized by an
increase in volume. Technical indicators which rely only on price changes do
not reflect the whole picture. RSI’s failure to account for volume is a serious
deficiency because volume can vary widely in market tops and bottoms. In an
effort to improve the RSI, Gene Quong and Avrum Soudack have devised a unique
short-term technical indicator called Money Flow Index (MFI). MFI is also known as volume-weighted RSI that
starts with the typical price for each period. MFI is an oscillator that uses
both price and volume to measure buying and selling pressure. MFI is positive
when the typical price rises (buying pressure) and negative when the typical
price declines (selling pressure).
MFI is used to determine the conviction in a current
trend by analyzing the price and volume of a given security which is similar to
the RSI. The main difference between MFI and RSI is that MFI also accounts for
volume, whereas the RSI do not accounts for volume. Many traders watch for
opportunities that arise when the MFI moves in the opposite direction as the
price. This divergence can often be a leading indicator of a change in the
current trend. MFI is one of the more reliable
indicators of overbought and oversold conditions, because it uses the higher
readings of 80 and 20 as compared to the RSI’s overbought/oversold readings of
70 and 30. Many traders commonly seek to buy and sell a stock in accordance
with the movement of this indicator.
main objective of this research is to find the optimum parameters of Money Flow
Index for trading derivatives, using s50z17 as a case study.
Materials and methods
daily Opening, High, Low, Closing prices and volume of S50z17 from December 29,
2016 to November 30,
2017, constitute the database of 227 observations to study. These data computed Money
Flow Index (MFI) to
measures the momentum in the market by determining how much money is going into
and out of the market. The value of the MFI is always between 0 and 100, and
calculating it requires several steps. Step one is to calculate the typical
price. Second, the raw money flow is calculated. The next step is to calculate
the money flow ratio using the positive and negative money flows for the last n
days. Finally, using the money flow ratio, the MFI is calculated. Formulas for
each of these items are as follows:
1. Compute the Typical
Price equal to:
Price = (High + Low + Close) /3
2. Compute Raw Money
Flow equal to:
Raw Money Flow = Typical Price * daily
3. Calculate the Positive
and Negative Money Flow over the past n days by:
Positive money flow is calculated
by summing up all of the money flow on the last n days
where the typical price is higher than the previous period typical price. This
same logic applies for the negative money flow
4. Compute the Money
Flow Ratio over a specified time period (n days) equal to:
Money Flow Ratio = (Positive
Money Flow) / (Negative Money Flow)
5. Calculate the Money
Flow Index as follows:
Money Flow Index = 100 – (100/(1+
Money Flow Ratio ))
The aim of this research is to find the optimum parameters
of MFI for trading derivatives, using s50z17 as a case study. The MFI must configuration
3 parameters together. The first parameter is a number of days vary from 2 to
50. The second parameter is oversold zone vary from 1 to 49. The last is overbought
zone vary from 51 to 99. All parameters will adjust in order to find the entry
point that making the best opportunity or the maximum profit as much as
possible. This research will initiates a new
buy position when the MFI indicator drops to oversold
zone or lower, and then holds the derivative
until the MFI indicator reach overbought zone or
There are 2 limitations in this research. The first one, in real life when
we trade derivative, we can trade both way. This mean, we can buy at low price
and then sell at high price later like trading in stock. The other way that we
can’t do in stock is sell at high price first and then follow buy at low price.
In this research study only the first way. The second limitation is commission
fee, each time to trade derivatives we must pay for commission fee, this
research don’t include it in net profit.
Results and Discussion
Considering the back test of whole s50z17 data, all possible
results that generate form adjust 3 parameters were
calculated and found that.
Number of times to trade by MFI was between 0-32 times and the average was
about 2 times.
The opportunity to win was between 50-100% which an average was 94.05%.
The opportunity to lose was less than or equal 50% which an average was 5.47%.
The average profit and loss per trade was 30.62 and 0.70 points respectively.
– The maximum of profit and loss per trade, was 172.0 and
40.4 points respectively.
The average duration from buy to sell was 57.69 days.
descriptive statistics of all case were shown as Table 1.