Settlement Price Calculation for SIMSCI

According to SGX, the calculation of the Final Settlement Price (FSP) of SGX MSCI Singapore Stock Index Futures Contracts will be changed from the current Averaging methodology to the Special Quotation (SQ) methodology effective 1st Sept 05.

Current FSP Methodology – Averaging
The current FSP methodology is based on the average value of the MSCI Singapore Free
Index, taken at 1-minute intervals in the last one hour of trading, together with the closing
MSCI Singapore Free Index value on the last trading day, excluding the highest and lowest
values.

New FSP Methodology- Special Quotation
The Special Quotation is calculated by MSCI using the first traded price of each component
stock in the MSCI Singapore Free Index on the day following the Last Trading Day,
irrespective of when those stocks first trade in the SGX trading day. This means that the first
traded price of each component stock may occur at any time between SGX market open and
market close on the day following the Last Trading Day. Should any component stock not
have traded by SGX market close on the day following the Last Trading Day, the last official
closing price of that stock will be used to calculate the Special Quotation.

This will be effective from 1 September 2005 (i.e. for contracts expiring in September 2005 and beyond). For contracts expiring before September 2005, the current FSP will apply.

So what is the impact on traders who specialised in making money on Simsic's settlement price? Well, in my opinion, it is a bad news! First of all, this golden opportunity only happens once a month and now with this new calcuation method, it will involve more risk. Why? Because it will definitely be tougher to 'guess' what would be the settlement price the next day. I believe no careful traders would be willing to take so much risk(holding overnight positions) for a meagre profit potential.

That is precisely the reason why traders do not speculate Nikkei's settlement price. Because Nikkei uses this method.

Looks like livlihood of traders will be affected. But traders are very creative creatures, i am sure they will find ways to fight the system, at least it is what want to I believe.

Where to place your stop in Nikkei?

When I scalped Nikkei using 15-min chart, I realised that when I was on the right side, my stop will never be triggered. But when I was wrong, then 3 ticks' stop ( i.e. 15 points) is good enough to prove me wrong.

Of course, there were times that the market hit your stop and went back to your level,, or even worst, back to your profit target level. Well, when that happened, you can only blame it on your luck or timing of entry. See, trading is an art, not a science. That's why only 5% of traders are making real obsense money.

But most of the time, a three ticks' stop is a good guideline to prevent you from losing big. After all, successful trading is all about knowing how to protect your captial . And at time, the stop can also act as a good indicator for you to turn around. That your first decision is wrong and you should now act the opposite.

I always like this quote: : "Your first cut is always the cheapest!"