Derivatives Investment Techniques by MTS Capital

1. Leverage Management

The key feature of derivative instruments is Leverage, which allows investors to post only a fraction of the total contract value as initial margin while controlling a significantly larger contract size. MTS Capital emphasizes that while Leverage increases capital efficiency, improper planning can make it a double-edged sword that exposes portfolios to severe losses.

• Practical Example using Gold Online Futures (GO) and Mini Gold Online Futures (SVH/GO):

  • Full Position vs. Managed Position: If Gold Online Futures requires an Initial Margin of 20,000 THB per contract, a trader with 100,000 THB should open only 1–2 contracts (utilizing 20,000–40,000 THB in margin) rather than maxing out at 5 contracts. This ensures sufficient cash cushion against sharp gold price swings.

2. Two-Way Trading Strategy

A primary advantage of derivatives is the ability to generate returns in both rising and falling markets. MTS Capital advises selecting positions aligned with market direction.

3. Technical Analysis & Planning

Derivatives prices move rapidly, presenting both opportunities and risks. MTS Capital encourages systematic technical analysis to execute emotion-free, precise trades.

• Applying Technical Indicators:

  • Short-Term Trading: Use momentum indicators such as RSI or Stochastic alongside Candlestick Patterns on smaller timeframes (15m, 1h) to identify entry and exit points.

  • Medium-to-Long-Term Investing: Apply trend-following tools such as Moving Averages and MACD on larger timeframes (4h, Daily) to evaluate overall market direction.

• Calculating Risk-Reward Ratio:

  • Evaluate trade viability prior to entering any position. MTS Capital sets a minimum standard Risk-Reward Ratio of 1:2 or 1:3 (risking 1 unit for a potential gain of 2–3 units or more).

  • Example: In a Gold Futures trade with a Stop Loss set at $10 below entry and a Take Profit target at $25 above entry, the Risk-Reward Ratio is 1:2.5, which satisfies the entry criterion. If the ratio falls below 1:2, avoid taking the setup.

4. Risk & Money Management

Risk control and disciplined Money Management are core pillars at MTS Capital for securing long-term portfolio growth.

• Strict Stop Loss Rules:

  • Set a Stop Loss order immediately upon entering a position based on technical support/resistance levels or limit risk to no more than 1%–2% of total capital per trade.

  • Maintain strict discipline by never moving or removing Stop Loss levels when the market moves against your position.

• Monitoring Margin Requirements:

  • Initial Margin (IM): Verify required initial margin before opening positions to ensure healthy equity levels.

  • Maintenance Margin (MM): Closely monitor equity relative to maintenance margin thresholds to prevent Margin Calls.

  • Retain extra liquidity to eliminate the risk of forced liquidation (Force Close).

5. Hedging Strategy

Beyond speculation, MTS Capital encourages derivative instruments for hedging to protect portfolios and businesses against price fluctuations.

• Gold Futures: Manages gold price risks for gold shops, jewelry manufacturers, and physical bullion holders.

• Currency Futures (e.g., USD Futures): Shields against exchange rate volatility for importers, exporters, and foreign investors.

• Equity Index Futures (e.g., SET50 Index Futures): Utilizes Short positions to protect equity portfolio value during market pullbacks without liquidating stock holdings.

6. High Volatility Strategy

Periods of high market volatility offer notable opportunities alongside heightened risks. Tailoring trading strategy protects capital while capturing upside:

• Adjust Position Sizing: Reduce contract size in volatile markets to limit damage from sharp short-term price swings.

• Adapt Stop Loss Distance: Widen Stop Loss ranges in alignment with volatility indicators (e.g., ATR) to avoid premature stop-outs caused by temporary market noise (whipsaws).

• Utilize Options Strategies: Deploy Options strategies like Long Straddle/Strangle or Protective Puts to cap maximum loss while remaining open to profit from strong directional moves.

7. Trading Psychology

Long-term derivatives trading success depends heavily on trading psychology—accounting for over 60% of overall performance. Discipline and emotional control remain paramount.

• Manage Fear & Greed: Remove emotional bias from decision-making and strictly execute your pre-defined Trading Plan.

• Avoid Revenge Trading: Following consecutive losses, pause trading to review your strategy and regain emotional composure before emotional trading escalates drawdown.

• Maintain a Trading Journal: Record entry/exit reasons, mental state, and trade outcomes to continuously refine and optimize your trading performance.

Summary of Derivative Products and Applications by MTS Capital