Hang Seng Trading Strategy (Futures Example And Backtest)

Last Updated on May 27, 2023

Launched on 24 November 1969, the Hang Seng Index (HSI) measures the performance of the Hong Kong Stock Market’s 50 largest companies. Representing about 50% of the value of the stocks quoted on the Hog Kong Stock Exchange, Hang Seng is the most-watched index of the Hong Kong economy, and Hang Seng futures is one of the most traded Asian equity indexes. What is the Hang Seng futures strategy?

A Hang Seng futures strategy is the methodology or technique you can use to profitably trade the DJIA futures market. DJIA futures refer to financial derivative products that represent a contract to buy or sell a specified amount of the Hang Seng Index on a future date, at a pre-agreed price. The contract trades on the Hong Kong Futures Exchange and is cash settled. The Hang Seng futures strategy includes technical and fundamental analyses for market timing and risk management and allows you to take positions on the performance of the Hang Seng Index, either for speculation or hedging purposes.

In this post, we answer some questions about the Hang Seng futures strategy. To make sure a strategy is profitable, we recommend to backtest, thus we backtest our strategy.

What are Hang Seng futures?

The Hang Seng futures is a futures contract in which the underlying asset is the Hang Seng Index (HSI), which is a capitalization-weighted index that is made up of the 50 largest and most liquid stocks on the Hong Kong Stock Market. A futures contract represents an agreement to buy or sell a specified quantity of the underlying asset at a pre-agreed price on a future date.

Hang Seng futures were introduced in 1986 by the Hong Kong Futures Exchange in response to increasing interest in the HSI. The HSI is considered the benchmark of the Hong Kong market, and since Hong Kong is the gateway for the Chinese market, the Hang Seng futures offers a way to gain exposure to the dynamic Hong Kong and Chinese markets. The futures contract can be used for hedging, portfolio diversification, and hedging purposes.

What is a Hang Seng futures strategy?

A Hang Seng futures strategy is the methodology or technique you can use to profitably trade Russell 2000 Index futures, and this often includes technical and fundamental analyses for market timing, position sizing, and risk management.

If you want to trade the Hang Seng index futures profitably, you must have a solid trading strategy. Your Hang Seng futures strategy must include precise entry and exit signals, as well as risk management techniques. Your approach may be to speculate or to hedge risks using the index futures, but it can also include arbitrage or spread trading.

Hang Seng futures strategy backtest

A backtest with strict trading rules, settings, statistics, and historical performance is coming soon.

What is the seasonality of Hang Seng futures?

Seasonality in trading refers to the observable patterns that an asset’s price tends to follow during specific times of the year. Also known as the market cycle, seasonal patterns are typically observed over longer time frames, like months.

From the chart below, you can see that the Hang Seng Index tends to perform better in the months of April, July, and October than in other months of the year.

Hang Seng futures strategy
Source: Equity Clock

What moves the Hang Seng What affects the Hang Seng the most?

There are many of them. One of them is the value of the Chinese Yuan. The index tends to do poorly when the yuan depreciates against the dollar. It also reacts to events in other major markets, including Wall Street and the Asia-Pacific area. The Shanghai and Shenzhen stock exchanges have some impact on the Hang Seng index — Hang Seng tends to move in tandem with the Shanghai Composite, as some of its constituents are also listed on the Shanghai stock exchange.

How are Hang Seng futures traded?

Hang Seng futures trade on the Hong Kong Futures Exchange (HKEX). The contracts are traded during weekdays, Monday to Friday, from 9:30 am to 4:00 Hong Kong local time (GMT+8). There is an hour lunch break between 12:00 pm and 1:00 pm (GMT+8).

There are two contract sizes: the full contract and the mini contract. For the full contract size, one contract unit is equivalent to HK$50 x HSI’s current value. For the mini contract, one contract unit is equivalent to HK$10 x HSI’s current value. The price quotation is in HK$ per point.

The contracts come in quarterly cycles of Mar, Jun, Sep, and Dec, with contracts listed for the spot month, the next calendar month, and the next two calendar quarterly months. The last trading day is the business day immediately preceding the last business day of the contract month, and contracts are financially settled on expiry.

How do you start trading Hang Seng futures?

You can trade the Hang Seng futures contract through a futures broker that can grant you access to the Hong Kong Futures Exchange where the contract is traded. Not many American and European brokers offer access to Asian markets, but Interactive Brokers (IB) does. So, to start trading the contract, you have to register with Interactive Brokers and fund your account. Since futures are leveraged instruments, you don’t need to have the total worth of the contract to start trading it — a little above the required initial margin is all you need.

Another option is to trade the CFD that tracks the Hang Seng futures, which is offered by some CFD brokers like IG. You can trade the CFD with IG if you think you can trust a CFD broker. One good thing about CFDs is that they enable you to trade price fluctuations without having to worry about contract expiry.

What is Hang Seng trading at?

As of December 1, 2022, the Hang Seng futures were trading at HK$18868. See the chart here on TradingView. You can also see the price on the HKEX platform. Note that the price changes from time to time, so what is quoted here may not be the price it is trading now you are reading this post. You can click on the link to get the real-time price on TradingView.

What’s the Hang Seng futures hour?

The Hang Seng Index trades on weekdays, Monday to Friday, from 9:30 am to 4:00 pm Hong Kong local time (GMT+8). The daily trading schedule is as follows:

  • 08:45 am ─ 09:15 am (Pre-Market Opening)
  • 09:15 am ─ 12:00 noon (Trading Hours)
  • 12:00 pm ─ 1:00 pm (Lunch Break)
  • 1:00 pm ─ 4:30 pm (Trading Hours)
  • 5:15 ─ 03:00 (T+1 Session)

All time is in Hong Kong local time, which is GMT+8.

Where can I find trading charts?

The chart is available on any trading platform that provides chart services. If your platform does provide charts, you can use TradingView, which offers free charts. However, to connect TradingView to your broker, you must subscribe to its Pro services. You can also get a basic chart on the HKEX platform.

Check Yahoo Finance too; it is another place where you can find Hang Seng futures charts. You can also subscribe to trading charts through a paid third-party platform like MultiCharts.

What are the trading symbols for Hang Seng futures?

The HKATS Code or the trading symbol for the Hang Seng futures contract is HIS.

What is the specification for the Hang Seng futures contract?

The trading symbol is HIS, and the underlying asset is the Hang Seng Index.

There are two contract sizes: the full contract and the mini contract. For the full contract size, one contract unit is equivalent to HK$50 x HSI’s current value. For the mini contract, one contract unit is equivalent to HK$10 x HSI’s current value. The price quotation is in HK$ per point, and the minimum fluctuation is one index point. So, the tick size of the full contract is HK$50 per contract, while the tick size of the mini contract is HK$10 per contract.

The contracts come in quarterly cycles of Mar, Jun, Sep, and Dec, with contracts listed for the spot month, the next calendar month, and the next two calendar quarterly months. The last trading day is the business day immediately preceding the last business day of the contract month (second to the last business day of the contract month), and contracts are financially settled on expiry.

Why should you start trading Hang Seng futures?

It provides a way to gain exposure to some of the largest Chinese companies, such as Tencent Holdings and the rest of the 50 largest companies on the Hong Kong Stock Exchange. Being one of the most actively traded indexes in the world, the HSI futures has good liquidity, which is good whether you are speculating or using the asset to diversify your portfolio or hedge risks. In addition, movements on the HSI can also be rather large, which appeals to active swing traders.

What is the contract size?

There are two contract sizes: the full contract and the mini contract. For the full contract size, one contract unit is equivalent to HK$50 x HSI’s current value. For the mini contract, one contract unit is equivalent to HK$10 x HSI’s current value.

Given the index’s current value of 18868, as of writing, the total worth of the full contract would be HK$50 x 18868 = HK$943,400. That of the mini contract would be HK$10 x 18868 = HK$188,680.

What is the tick size?

The tick size of the full contract is HK$50 per contract, while the tick size of the mini contract is HK$10 per contract.

What is the minimum price fluctuation for Hang Seng futures?

The minimum fluctuation is one index point for both contract types.

Are there any ETFs?

Yes, there are two Hong Kong exchange-traded funds (ETFs) that trade in the United States: EWH and FLHK. The EWH tracks the investment results of an index composed of Hong Kong equities, while FLHK provides targeted exposure to large-sized and mid-sized companies in Hong Kong. The top holding for each of these ETFs is AIA Group Ltd.

What factors affect the Hang Seng prices?

There are many of them, including the value of the Chinese Yuan. The index tends to do poorly when the yuan depreciates against the dollar. The index also reacts to events in other major markets, such as Wall Street and Tokyo.

Events on other Chinese exchanges, such as the Shanghai and Shenzhen stock exchanges do have a great impact on the Hang Seng index — the index tends to move in tandem with the Shanghai Composite, as some of its constituents are also listed on the Shanghai stock exchange.

What is the all-time high for Hang Seng futures?

Based on the TradingView chart for Hang Seng futures (HSI), the all-time high of the HSI futures is 33516, which it reached in January 2018.

What are the biggest risks in trading Hang Seng futures?

The biggest risk when trading the Hang Seng contract comes from adverse price movement. Given that the futures contract is leveraged, adverse price movements can lead to huge losses. For example, if you trade with a 10x leverage, a 1% negative movement results in a 10% loss in your account, while an 8% adverse price move could lead to getting a margin call, as your account would have less than 20% maintenance margin left.

What is the settlement method?

The contract is financially settled

What is the settlement procedure?

On expiry, the contract is settled with cash. The settlement balance is calculated by taking the average of quotations at (i) five (5) minute intervals from five (5) minutes after the start of, and up to five (5) minutes before the end of, the Continuous Trading Session of SEHK; and (ii) the close of trading on SEHK on the Last Trading Day.

What is the block minimum for Hang Seng futures?

No block trade eligibility is stated for this contract.

What is the difference between Hang Seng futures and the CFD instrument for Hang Seng?

For CFDs that track the Hang Seng futures, the main difference between trading the CFD and trading the futures contract directly is that futures contracts have fixed expiration dates, while CFDs can be traded indefinitely.

However, only a few CFD brokers offer CFDs on futures contracts. Many simply offer CFDs that track the index. In that case, the difference from the futures contract becomes the nature of the pricing — the CFDs are based on the spot price of the index, while the futures contracts are priced into the future.

Which forex instrument is the same as Hang Seng futures

Hang Seng index futures CFD

What are some important dates for this market?

Some important dates for the Hang Seng index market include:

  • 1969 when the Hang Seng Index was created
  • 1986 when the Hang Seng index futures were introduced
  • 2000 when the mini contract was introduced
  • 2002 when the mini options contract was introduced

What is the highest Hang Seng has ever been its all-time high?

Based on the TradingView chart for Hang Seng futures (HSI), the highest level the HSI futures has ever reached was 33516, which happened in January 2018.

What is the lowest Hang Seng has ever been its all-time low?

Based on the TradingView chart for Hang Seng futures (HSI), the lowest level the HSI futures has ever reached was 1875, which happened in December 1987.

Conclusion

While trading equity index futures offers a good way to diversify your trading portfolio, hedge risks on the equity market, and speculate on the direction of the market, you need the right Hang Seng futures strategy to succeed in this market.

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