Korean KOSPI 200 Futures Strategy (Backtest And Example)

Last Updated on December 12, 2022

KOSPI is a short form for Korean Composite Stock Price Indexes, and KOSPI 200, which comprises the 200 largest publicly-traded common stocks traded in Korea, is the most popular. KOSPI 200 futures are one of the most actively traded equity indexes in the Asian market and definitely the most traded on the Korean Exchange. Want to know about the Korean KOSPI 200 futures strategy?

A Korean KOSPI 200 futures strategy is the methodology or technique you can use to profitably trade the Korean KOSPI 200 futures market. KOSPI 200 futures refer to financial derivative products that represent a contract to buy or sell a specified amount of the Korean KOSPI 200 Index on a future date, at a pre-agreed price. The contract trades on the Korean Exchange and Eurex, and it is cash settled. You can use the Korean KOSPI 200 futures strategy to take positions on the performance of the KOSPI 200 Index, either for speculation, portfolio diversification, or hedging purposes.

In this post, we answer some questions about the Korean KOSPI 200 futures strategy. We also make a backtest of a trading strategy.

What are Korean KOSPI 200 futures?

Launched in 1983, KOSPI refers to the Korea Composite Stock Price Index — an index of all common stocks traded on the Stock Market Division of the Korea Exchange (KRX). KOSPI 200 represents the largest and most liquid 200 stocks of the composite index, and just like the S&P 500 Index in the US market, it is calculated based on market capitalization.

The KOSPI 200 futures are the most actively traded equity index futures on the Derivative Section of the Korean Exchange. The contract represents a legally binding financial agreement to buy or sell a specified amount of the Korean KOSPI 200 Index on a future date, at a pre-agreed price. It trades on the Korean Exchange and Eurex, and it is cash settled. KOSPI 200 futures offers a way to gain exposure in the Asian market, specifically the Korean market. You can use it for speculation, portfolio diversification, and hedging purposes.

What is a Korean KOSPI 200 futures strategy?

A Korean KOSPI 200 futures strategy is the methodology or technique you can use to profitably trade the Korean KOSPI 200 futures market. This will often involve technical and fundamental analyses for market timing and risk management, as well as position sizing and risk management techniques.

If you want to trade the Korean KOSPI 200 index futures profitably, you must have a solid trading strategy. Your Korean KOSPI 200 futures strategy must include precise entry and exit signals, as well as risk management techniques. You may use it to take positions on the performance of the Korean KOSPI 200 Index and profit from price fluctuations or to hedge risks using the index futures, but it can also be used for arbitrage or spread trading.

Korean KOSPI 200 futures strategy backtest

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

What is the seasonality of Korean KOSPI 200 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 or seasons (winter, summer, fall, and spring). Take a look at the Korean KOSPI seasonality chart below:

Korean KOSPI 200 Futures Strategy
Source: Equity Clock

From the chart above, you can see that the Korean KOSPI 200 Index tends to perform better in the months of March, April, June, September, and December than in other months of the year.

What moves the Korean KOSPI 200 What affects the Korean KOSPI 200 the most?

There are many factors that can affect the KOSPI 200 futures, and these are some of them:

  • The movement of the component stocks: The KOSPI 200 index is a market-capitalization-weighted index, so the index movement is more dependent on the movement of higher-cap stocks than on the lower-cap stocks.
  • Economic news: Macroeconomic news reports, such as GDP growth rates, manufacturing index, and so on, affect the movement of the Korean KOSPI 200 futures.
  • Events in other major markets: KOSPI 200 Index tends to react to events in other major markets, including Wall Street and the Asia-Pacific area.
  • Value of the Korean Won: KOSPI 200 futures are quoted in Korean won (KRW) on the KRX, so the value of the KRW affects its performance.

How are Korean KOSPI 200 futures traded?

Korean KOSPI 200 futures trade on the Derivatives Division of the KRX. The contracts are traded during non-holiday weekdays, Monday to Friday, from 9:00 am to 3:45 pm Korea local time (GMT+9). There is also Single Price Auction: 08:00 ~ 09:00 and 15:35 ~ 15:45 local time.

With the KOSPI 200 Index as the underlying asset, one contract unit is equivalent to the current value of the KOSPI 200 Index multiplied by KRW 250,000. The price quotation is in KRW per point.

The contracts come in quarterly cycles of March, June, September, and December. Trading terminates at 15:20 hours on the second Thursday of the contract month, and contracts are financially settled on expiry, which is on the second Friday of the contract month.

How do you start trading Korean KOSPI 200 futures?

You can trade the KOSPI 200 futures contract through a futures broker that can grant you access to the Korean Exchange where the contract is traded. While not many American and European brokers offer access to Asian markets, 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 KOSPI 200 futures, which is offered by some CFD brokers like IG. One good thing about CFDs is that they enable you to trade price fluctuations without having to worry about contract expiry.

What is the Korean KOSPI 200 trading at?

As of December 8, 2022, the Korean KOSPI 200 futures were trading at KRW 308.29. See the chart here on TradingView. You can also see the price on Yahoo Finance. 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 Korean KOSPI 200 futures hour?

The KOSPI 200 Index futures contracts are traded on the Korean Exchange during non-holiday weekdays, Monday to Friday, from 9:00 am to 3:45 pm Korea local time (GMT+9). There is also Single Price Auction: 08:00 ~ 09:00 and 15:35 ~ 15:45 local time. On the last trading day, the trading schedule is 9:00 am to 3:20 pm Korea local time (GMT+9).

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 the chart on Yahoo Finance. Alternatively, you can subscribe to trading charts through a paid third-party platform like MultiCharts.

What are the trading symbols for Korean KOSPI 200 futures?

The trading symbol for Korean KOSPI 200 futures is KOSPI on the Korean Exchange and FBK2 on Eurex Exchange.

What is the specification for the Korean KOSPI 200 futures contract?

Korean KOSPI 200 futures trade on the Derivatives Division of the KRX, and the underlying asset is KOSPI 200 Index. One contract unit is equivalent to the current value of the KOSPI 200 Index multiplied by KRW 250,000. The initial margin rate is 8.1%, while the maintenance margin rate is 5.4%. The price quotation is in KRW per point, and the minimum price fluctuation is 0.05 per point, which implies a tick value of KRW 12,500 per contract.

The contracts come in quarterly cycles of March, June, September, and December, with four quarterly months. There are also two half-yearly months and one yearly month. The contracts are traded during non-holiday weekdays, Monday to Friday, from 9:00 am to 3:45 pm Korea local time (GMT+9). There is also Single Price Auction: 08:00 ~ 09:00 and 15:35 ~ 15:45 local time.

Trading terminates at 15:20 hours on the second Thursday of the contract month, and contracts are financially settled on expiry, which is on the second Friday of the contract month.

Why should you start trading Korean KOSPI 200 futures?

The KOSPI 200 futures offer a way to gain exposure to some of the largest South Korean companies trading on the Korean Exchange. Being one of the most actively traded indexes in the Asian market, KOSPI 200 futures has good liquidity, making it easy to get in and out of the market at will.

You can trade the contract to diversify your portfolio into the Asian market, hedge your risk exposure in Asian equities, or simply speculate on the price movement of the KOSPI 200 Index and profit from the fluctuations. The contract tends to have good volatility, which makes it a good instrument for active day and swing traders.

What is the contract size?

One contract unit is equivalent to the current value of the KOSPI 200 Index multiplied by KRW 250,000. Given the current value of the index, 308.29, as of writing, the actual worth of one contract in KRW is 250,000 x 308.29 = KRW 77,072,500. At an exchange rate of 1320.01 KRW per 1 USD, the USD worth of the contract is 77,072,500/1320.01 = USD 58,387.82.

What is the tick size?

The tick size is KRW 12,500 per contract.

What is the minimum price fluctuation for Korean KOSPI 200 futures?

The minimum price fluctuation is 0.05 per point.

Are there any ETFs?

Yes, there are two KRX’s exchange-traded funds (ETFs) that trade in the United States: iShares MSCI South Korea ETF (EWY) and Franklin FTSE South Korea ETF (FLKR). However, they do not offer pure exposure to the KOSPI 200 Index. While EWY tracks the MSCI Korea 25/50 Index, which gauges the overall performance of the mid-cap and large-cap segments of the South Korean stock market, FLKR tracks the FTSE South Korea Capped Index, a market capitalization-weighted index composed of mid-cap and large-cap companies.

What factors affect Korean KOSPI 200 prices?

Some of the factors that move the KOSPI 200 index price are:

  • The movement of the component stocks
  • Economic reports, such as GDP growth rates, manufacturing index, and so on
  • Events in other major markets, including Wall Street and the Asia-Pacific area
  • Value of the Korean Won

What is the all-time high for Korean KOSPI 200 futures?

Based on the TradingView chart for the Korean KOSPI 200 Index, the all-time high of the index is 449.04, which it reached in January 2021.

What are the biggest risks in trading Korean KOSPI 200 futures?

When trading the KOSPI 200 futures contract, the biggest risks come from adverse price movement, and here’s why: The futures contract is leveraged, so adverse price movements can lead to huge losses. For example, if you trade with a 20x leverage, a 1% negative movement results in a 20% loss in your account, while a 4% adverse price move could lead to getting a margin call. A 5% adverse movement would wipe out your account.

What is the settlement method?

Financially settled

What is the settlement procedure?

On expiry, the final settlement is calculated based on the special opening quotes of the index on the day of final settlement which is normally the second Friday of the contract month.

What is the block minimum for Korean KOSPI 200 futures?

No block trade eligibility is stated for this contract.

What is the difference between the Korean KOSPI 200 futures and the CFD instrument?

CFDs on KOSPI 200 futures are offered by some online forex brokers like IG. CFD trading differs from futures in that futures contracts have fixed expiration dates, but CFDs can be traded indefinitely

Which forex pair is the same as the Korean KOSPI 200 futures

Korean KOSPI 200 CFD

What are some important dates for this market?

Here are some of the important dates for the Korean KOSPI market:

  • 1983: KOSPI was launched
  • May 3, 1996: KOSPI 200 futures were introduced
  • June 17, 1998: The index had its largest one-day percentage gain of 8.50%
  • September 12, 2001: It’s largest one-day percentage drop of 12.02%

What is the highest Korean KOSPI 200 has ever been its all-time high?

Based on the TradingView chart for the Korean KOSPI 200 Index, the highest level the index has ever reached was 449.04, and this happened in January 2021.

What is the lowest Korean KOSPI 200 has ever been its all-time low?

Based on the TradingView chart for the Korean KOSPI 200 Index, the lowest level the index has ever fallen to was 31.96, and this happened in June 1998.

Conclusion

You can use the Korean KOSPI 200 Futures strategy to speculate on the South Korean market, diversify your investment portfolio, or hedge your exposure in the Korean equity market.

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