Complete Guide to Derivatives Trading in Malaysia

Malaysia’s derivatives market isn’t just growing — it’s sprinting ahead. Fueled by global demand for palm oil, rising financial sophistication, and a deepening Shariah-compliant ecosystem, Malaysia is fast becoming Southeast Asia’s derivatives powerhouse. 

In Q1 2025 alone, Bursa Malaysia Derivatives saw its Average Daily Contracts (ADC) jump 21.3% year-on-year, hitting 102,184 contracts. From hedging inflation risks to speculating on crude palm oil prices, more Malaysians are turning to derivatives not just as a financial tool, but as a tactical edge in an unpredictable market.

What are derivatives?

Derivatives are financial contracts whose value is based on an underlying asset — such as palm oil, interest rates, equities, currencies, or market indices. In simpler terms, they let investors and businesses manage risk or bet on price changes without owning the actual asset.

In Malaysia, derivatives play a crucial role across sectors:

•  Palm oil exporters use Crude Palm Oil Futures (FCPO) to hedge against global commodity price swings.
• Banks rely on interest rate derivatives to manage exposure to changes in Bank Negara Malaysia’s monetary policy.
• Export-oriented manufacturers use currency derivatives to reduce risks from MYR fluctuations when dealing in USD, CNY, or EUR.

These instruments are mainly used for hedging, speculation, and arbitrage — making them essential tools not just for large institutions, but increasingly for informed retail investors too.

Malaysian derivatives market overview

Malaysia’s derivatives market has entered 2025 with serious momentum — and the data proves it.

Average Daily Contracts (ADC) jumped from 72,896 in FY2023 to 92,106 in FY2024, representing a 26.4% year-on-year surge. This upward trend didn’t stop at the new year: in Q1 2025, ADC soared to 102,184 contracts, marking a 21.3% increase from Q1 2024.

As shown in the chart, the two engines driving this expansion are:

• Crude Palm Oil Futures (FCPO) — Malaysia’s flagship commodity derivative
• FTSE Bursa Malaysia KLCI Futures (FKLI) — a key index product for institutional hedging and exposure

The market's diversification is also clear:

• Foreign institutions: 64% of total trading volume (Q1 2025)
• Domestic institutions: 21%
• : 15%

Source: Bursa 1Q 2025 results

Moreover, the adoption of T+1 After-Hours Trading has also widened access, now contributing 13.5% to total ADC — up from 11.4% a year earlier.

Source: Bursa 1Q 2025 results

Types of derivatives

Malaysia’s derivatives market can be grouped into two main categories: Exchange-traded derivatives (ETDs) and over-the-counter (OTC) derivatives.

Both are used for hedging, speculation, or arbitrage — but they differ in structure, accessibility, and risk.

1. Exchange-traded derivatives (ETDs)

ETDs are standardised contracts traded on regulated platforms like Bursa Malaysia Derivatives (BMD). These contracts come with preset terms — such as contract size, expiry date, and tick size — making them easy to access and highly liquid. Every trade is cleared through Bursa Malaysia Derivatives Clearing (BMDC), which acts as a central counterparty, significantly reducing default risk.

Malaysia’s exchange-traded instruments include both futures and options:

Futures contracts

Futures are agreements to buy or sell an asset at a fixed price on a future date. Traders are obligated to settle the contract either by physical delivery or cash.

Popular futures contracts on Bursa Malaysia:

All of these are traded via CME Globex and support after-hours trading (T+1) from 9:00 PM to 2:30 AM (Monday–Thursday), opening the market to global participants.

Options contracts

Options give the buyer the right, but not the obligation, to buy (call) or sell (put) the underlying futures contract at a fixed price before expiry. They’re popular for hedging downside, locking in future costs, or even generating income.

Listed options in Malaysia:

• OKLI – Options on FKLI
• OCPO – Options on FCPO Both are European-style (exercised only at expiry) and cash-settled.

2. Over-the-counter (OTC) derivatives

OTC derivatives are privately negotiated contracts between two parties — often banks, corporates, or fund managers. They’re used when contracts need to be tailored for specific needs, beyond what is available on an exchange.

Because there’s no central counterparty, the risk of default is higher — which is why OTC contracts are backed by legal frameworks like the ISDA Master Agreement or its Islamic equivalent (ISDA/IIFM TMA).

Common OTC contracts in Malaysia include:

• Interest rate swaps – used by banks to manage long-term rate exposure
• Currency forwards – common for exporters/importers to hedge USD/MYR or CNH risk
• Equity-linked swaps – synthetic equity exposure without holding the actual asset

OTC derivatives in Malaysia are regulated under the Capital Markets and Services Act (CMSA 2007) and are mostly limited to sophisticated investors, such as:

• Licensed financial institutions
• Companies with net assets > RM10 million
• Individuals with annual income > RM300,000

Comparing ETDs vs OTC derivatives

Understanding futures contracts

Traded on Bursa Malaysia Derivatives (BMD), these standardised agreements allow participants to buy or sell an asset at a set price on a future date. Whether for risk management or tactical trading, futures provide a transparent, regulated way to manage exposure across commodities, interest rates, and equities.

Trading strategies and order types

When trading futures, market participants can adopt different trading strategies depending on their objectives and risk appetite:

Trading strategies:

• Outright trade: A single futures position, either long or short.
• Spread trade: Simultaneously taking long and short positions in two different contracts (e.g., different months or instruments).
• Strip trade: Multiple futures positions across sequential months — typically used for longer-term hedging.

Types of order used:

• Market order: Buy/sell at the best available price immediately.
• Limit order: Specify the exact price to buy or sell.
• Stop order: Triggered only when the market hits a certain price.
• Good-till-cancelled (GTC): Remains active until manually cancelled.
• All-or-none (AON): Executes the full order size or nothing at all.

Key features of futures contracts

Futures contracts on BMD are highly structured and transparent:

• Exchange traded: All contracts are executed on a central exchange (BMD).
• Standardised terms: Defined specifications including underlying asset, expiry date, contract size, settlement type, and tick size.
• Cash or physical settlement: Depending on the contract, settlement can be done in cash or by actual delivery of the asset.
• Mark-to-market: Contracts are revalued daily based on closing market prices to reflect profit or loss.
• Leverage: Only a small margin deposit is needed to control a much larger notional exposure.

Comparison: Futures vs Forward contracts

Advantages of futures trading:

• Low credit risk due to central clearing
• High liquidity in benchmark contracts like FCPO and FKLI
• Leverage provides amplified exposure with smaller capital
• Off-balance-sheet treatment for corporates
• Convergence of futures price with spot price at expiry, useful for hedging

Disadvantages to consider:

• Standardised nature may not suit all hedging needs
• Daily mark-to-market can lead to margin calls
• Basis risk if the contract is closed before expiry

BMD futures products

Malaysia offers a wide variety of futures across asset classes, tailored for both institutional and retail investors:

Settlement mechanics and obligations

All futures contracts on BMD specify whether the instrument is cash-settled or physically delivered. Settlement obligations are binding for both buyers and sellers at contract expiry unless the position is closed beforehand.

Trading takes place either via electronic platforms like CME Globex or via open outcry (for legacy pits), ensuring global accessibility and tight spreads.

Understanding options contracts

Options are one of the most versatile tools in the Malaysian derivatives market — used by traders, corporates, and institutions alike. At their core, options give you the right, but not the obligation, to buy or sell something (like futures) at a fixed price within a certain period.

What’s exactly an option?

There are two main types:

• Call option: You’re betting the price will go up. It gives you the right to buy at a fixed price.
• Put option: You’re betting the price will go down. It gives you the right to sell at a fixed price.

If you're the buyer, you pay a premium upfront to get this right. If you're the seller (also called the “writer”), you receive the premium — but you’re on the hook if the buyer decides to exercise their right.

Most options traded on Bursa Malaysia — like those linked to the FBM KLCI Futures (OKLI) or Crude Palm Oil Futures (OCPO) — follow the European-style, meaning they can only be exercised at expiry.

Key components of an option

Every option has four things you should care about:

1. Strike price – The price where you can buy/sell the underlying asset
2. Premium – The cost you pay to own the option (paid upfront)
3. Expiry date – The last day the option is valid
4. Underlying asset – Usually a futures contract like FKLI or FCPO

The premium you pay is made up of:

• Intrinsic value: If your option is already “in the money”
• Time value: Based on how much time is left until expiry (this slowly disappears as expiry gets closer)

How it works in real life

Let’s say you buy a call option on FKLI at a strike price of 1,500. You pay a 32.5-point premium. If FKLI jumps to 1,560 before expiry, your options in the money, and you’re likely to profit. If it stays below 1,500, the option expires worthless — and your maximum loss is just the premium paid.

For sellers, it’s the other way around — they earn the premium, but take on the risk of being exercised against.

Common lingo you’ll hear

Why do people trade options?

Options are popular for a reason. You can use them to:

• Protect your investments (hedging): E.g. buy a put to limit losses if KLCI falls
• Lock in future prices while waiting for funds to come in
• Generate income: Sell calls on assets you already own
• Speculate on volatility: Use straddles or spreads to profit from big moves

Who benefits what?

Steps to trading derivatives

Step 1: Choose a licensed trading participant (broker)

First, select a derivatives broker licensed by the Securities Commission Malaysia. These brokers act as Trading Participants on Bursa Malaysia Derivatives (BMD):

Compare each broker’s trading platform, commission rates, margin terms, and educational support before committing.

Step 2: Opening a futures trading account in Malaysia

Opening a trading account is a regulated process that ensures suitability, risk awareness, and proper client onboarding. Here's the standard 5-step journey:

Estimated account opening time: 2–5 working days (varies by broker and documentation quality)

Step 1: Submit application forms

Complete the Futures Trading Account Application Form, Risk Disclosure Statement, and any other required documentation provided by your chosen broker.

Step 2: Submit documents

Forward all required documents (ID, proof of income, CDS account info, corporate resolutions if applicable) to your broker for review and processing.

Step 3: Account approval

Your broker will assess and approve your application. If successful, you will be assigned a trading account number and provided funding instructions.

Step 4: Fund your account

Deposit your initial margin using one of the 9 approved currencies (e.g., MYR, USD). Margin requirements vary by contract type (e.g., RM7,500 for FCPO).

Step 5: Start trading

Once your account is funded and approved, you can start placing orders on BMD via your broker’s trading platform or over the phone.

Step 3: Understanding the fees? 

Exchange and clearing fees

Every trade on Bursa Malaysia Derivatives is subject to two core charges:

• Trading fee – paid to the exchange (Bursa Malaysia Derivatives)
• Clearing fee – paid to the clearinghouse (Bursa Malaysia Derivatives Clearing)

These are charged per contract and vary by product type and currency denomination.

RM-denominated contracts:

Single Stock Futures (SSF) – tiered by stock price:

USD-denominated contracts:

RMB-denominated contracts:

Broker commissions

Besides exchange fees, you’ll pay a commission to your broker for each buy/sell order executed.

• Typically 0.1 - 0.42% 
• Can be lower for high-volume traders or negotiated client tiers
• Many brokers offer incentives for new clients or reduced rates during promotional periods

Always clarify full commission breakdown and whether additional platform or clearing charges apply.

Tax charges: SST & stamp duty

Incentives for Local Participants (LPs)

If you're a Local Participant (a professional trader registered with Bursa):

• Enjoy fee rebates on exchange and clearing charges
• Tax abatement of 50% on trading income
• First 3 months: exempt from monthly volume thresholds (min 1,000 contracts/month thereafter)

Margin-related costs

To open and hold futures positions, you need to place a margin deposit. These are not technically fees but are capital requirements that function as collateral.

Other related costs:

• Margin financing charges if you borrow to fund your margin
• Daily mark-to-market losses must be settled next day (or same day if breach happens intraday)

Currency conversion charges

For contracts traded in USD or RMB:

• FX conversion fees apply when converting MYR deposits to USD or RMB
• Spread costs and currency fluctuations may impact net profitability

Final cost structure summary

Step 4: Placing derivatives orders

Once your futures trading account is active, you can place your derivatives orders in one of two ways: either electronically via a trading platform or manually through broker-assisted calls.

Internet Orders

This electronic mode of communication via the internet allows the client to key in his or her orders directly after taking a position on the market. The client remains in full control of their orders and is not dependent on the broker to execute them. 

After deciding on a trading direction — buy or sell — the client can enter their own orders, amend them, cancel them, and check order status at their own convenience. Most brokers in Malaysia offer robust mobile and desktop trading platforms that support this mode of execution.

Voice Orders

This is a verbal mode of communication between the client and their broker, typically used for both trading advice and order execution. While this approach provides personal interaction between the two parties, the process is dependent on the broker's availability and may involve waiting time, especially if the telephone line is engaged. 

Clients must verbally communicate all details of their orders — including order entry, changes, withdrawals, and enquiries regarding whether the order is completed or partially filled.

The key difference:

Internet orders give clients full control and speed via self-directed platforms, while voice orders involve broker assistance and may experience execution delays.

What happens after your order is executed?

Regardless of how you place your order, the post-trade infrastructure is the same:

Step 5: Understanding trading calendar, sessions, and market parameters

Once you’ve opened your account and are ready to place trades, it’s essential to understand when the market is open, how trades are structured throughout the day, and what rules govern price movements. 

Trading calendar: when contracts expire and settle

Every futures and options contract has a fixed expiry date — and for physically delivered contracts, a defined tender or delivery period. The trading calendar released by Bursa Malaysia each year outlines all these key dates so that traders can manage positions, roll over contracts, or prepare for settlement in advance.

Here’s how it works in practice:

• Index and equity contracts (e.g. FKLI, OKLI, SSF, FM70) expire on the last trading day of each month — typically the final business day.
• Interest rate futures like FKB3 expire on the third Wednesday of the month.
• Bond futures (FMG3, FMG5, FMGA) follow a quarterly expiry cycle.
• Commodity contracts (FCPO, FEPO, FPKO, FUCO) typically expire on the 15th of each month, unless that falls on a weekend or public holiday.

For physically delivered contracts like FCPO, the calendar also specifies a tender period — a window during which buyers and sellers must match out their obligations if they hold positions to expiry. Missing these windows can result in unwanted physical delivery or forced cash settlement.

Trading sessions: day and after-hours

The trading day on Bursa Malaysia is divided into structured sessions, with precise start and end times depending on the product type. There are two main trading blocks:

Day session (Monday to Friday)

• Pre-opening phase begins between 8:15 AM and 10:00 AM, depending on the product.
• Trading officially opens at 9:00 AM for most contracts, and at 10:30 AM for FCPO and related commodity products.
• There is a midday break, typically between 12:00 PM and 1:30 PM, although exact times vary by contract.
• Trading then resumes for the afternoon session, and most contracts close by 5:00 PM to 6:00 PM.

After-hours (T+1) session (Monday to Thursday)

To support international participation, Bursa also offers an after-hours session from:

• 9:00 PM to 2:30 AM (next day)
• Pre-opening begins at 8:45 PM

Not all products trade during this session, but key contracts like FCPO, FKLI, and FM70 are accessible. This session is hosted on the CME Globex platform, making it ideal for traders in overlapping time zones such as Europe or the US.

Trading parameters: how volatility is managed

Bursa Malaysia employs a set of risk management tools known as trading parameters. These determine how far a contract’s price can move within a given session, how large an order can be, and how the system handles sudden spikes in price.

Key trading parameters

Each contract is subject to four main controls:

Let’s use FCPO as an example:

• Price Banding: ±80 ticks → RM3,800 can only move between RM3,720 and RM3,880
• Protection Points: ±40 ticks → triggers checks for unusual activity
• Stop Spike & NRR: ±100 ticks → anything beyond RM3,900 or below RM3,700 will be flagged

These levels are adjusted for each product, depending on volatility and market conditions.

Here are some sample values:

Options contracts (e.g. OKLI, OCPO) have dynamic price bands that depend on the value of their underlying futures. Their reasonability checks ensure option premiums are within logical bounds based on the futures contract they track.

What is a tick?

A tick is the smallest allowable price movement for a futures or options contract. For example:

• If FCPO has a tick size of RM1, then prices can only move in multiples of RM1 (e.g., RM3,800 → RM3,801 → RM3,802).
• Each tick also has a tick value, which is the monetary gain or loss per contract per tick. For FCPO, this is typically RM25 per tick.

Ticks are the foundation for all price-based controls in the market.

Order management controls

Finally, the trading system uses a structured set of order states, inherited from CME Globex. These determine when orders can be submitted, cancelled, or modified.

These mechanisms are essential for orderly market function — especially during open and close periods when liquidity surges.

Explore available derivatives products in Malaysia

Malaysia’s derivatives ecosystem is compact yet strategically structured. Operated through Bursa Malaysia Derivatives (BMD), the market focuses on a core suite of products covering commodities, equities, and financial instruments. 

These contracts serve the needs of a wide range of participants — from plantation companies and exporters to fund managers and proprietary trading desks.

1. Commodity derivatives

Malaysia’s dominance in palm oil exports has made commodity derivatives — especially agricultural — the backbone of its derivatives market.

Agricultural Contracts:

• FCPO (Crude Palm Oil Futures): The flagship contract and global benchmark for palm oil prices. Physically delivered and MSPO-certified. Accounts for over 80% of Malaysia’s derivatives volume.
• FEPO (Refined Edible Palm Oil Futures): A cash-settled contract for refined palm oil, used widely by exporters and refiners.
• FPKO (Palm Kernel Oil Futures): Used by processors to manage price exposure for palm kernel oil.
• OCPO (Certified Sustainable Crude Palm Oil Futures): Designed for ESG-conscious investors, this contract includes sustainability criteria.

Other Commodities:

• FGLD (Gold Futures): A 100-gram MYR-denominated, cash-settled contract. Offers access to international gold pricing at smaller lot sizes.
• FSOY (Soybean Oil Futures): A USD-settled contract linked to China’s Dalian Commodity Exchange, providing cross-regional price exposure.

2. Equity derivatives

Equity derivatives offer exposure to Malaysia’s public markets and are widely used for both portfolio hedging and speculative plays.

• FKLI (FTSE Bursa Malaysia KLCI Futures): Tracks the benchmark FBM KLCI. Highly liquid and cash-settled.
• OKLI (KLCI Options): Options on FKLI futures, enabling traders to build structured positions or hedge with defined risk.
• Single Stock Futures (SSF): Futures on selected individual Malaysian stocks. Now available in smaller contract sizes and tiered by share price for retail accessibility.

3. Financial derivatives

These contracts cater to institutions managing interest rate and bond exposure, especially in a rising or volatile rate environment.

• FKB3 (3-Month KLIBOR Futures): Based on Malaysia’s interbank offered rate. Commonly used by banks and corporates to manage short-term funding risk.
• FMG3, FMG5, FMGA (Government Bond Futures): Futures based on Malaysian Government Securities (MGS), with different maturities. Used for hedging bond portfolios and rate speculation.

4. Index and mid-cap derivatives

• FM70 (FTSE Bursa Malaysia Mid 70 Index Futures): Provides exposure to mid-cap Malaysian stocks. Designed for affordability and broader market coverage.

5. Options contracts

Options are available on both index and commodity futures, allowing for more flexible, risk-managed strategies.

• OKLI: Options on KLCI Index Futures (FKLI).
• OCPO and OPOL: Options on FCPO and FEPO contracts, giving traders leverage and downside protection within the commodities space.

Product category summary

Derivatives vs. long-term investing with StashAway

Derivatives trading can offer powerful tools for short-term strategies—like hedging, speculation, or managing exposure—but it also comes with high risk, complexity, and the need for constant monitoring. For many investors, especially those focused on building long-term wealth, this isn’t the most suitable path.

That’s where StashAway steps in. As a regulated digital wealth manager, StashAway builds globally diversified portfolios designed for resilience through market cycles—not just short-term bets. Whether you're investing for retirement, a big goal, or simply looking for steady long-term growth, StashAway offers a data-driven, automated approach that eliminates the stress of active trading.

If you’d rather grow your wealth without watching every market tick, consider a smarter, more sustainable route.

Derivatives on the rise

Malaysia's derivatives market has emerged as a regional powerhouse, experiencing remarkable 21.3% growth in Q1 2025. The market's success stems from three key pillars: commodity leadership (FCPO dominates 80%+ of volume), institutional participation (64% foreign, 21% domestic institutions), and robust infrastructure (CME Globex platform with after-hours trading).

The ecosystem serves diverse needs through exchange-traded derivatives (standardized, low-risk via central clearing) and OTC derivatives (customizable, higher counterparty risk, sophisticated investors only). Key products span commodities (palm oil, gold), equities (KLCI futures/options, single stocks), and financials (interest rates, government bonds).

Market accessibility has improved through smaller contract sizes, tiered fee structures, and comprehensive broker networks. The regulatory framework balances innovation with investor protection, supporting both hedging and speculative activities while maintaining strict risk management protocols.

Strategic advantages include global price discovery for palm oil, Shariah-compliant options, 24-hour trading capabilities, and integration with international markets through established clearing relationships.