How to view the Taiwan Index? A complete guide from beginner to advanced trader in Taiwan Index futures

Things You Must Know Before Starting Trading Taiwan Stock Index Futures

If you’re new to futures trading, you might have heard of “Taiwan Stock Index Futures,” but you’re not quite clear on what the near-expiry contracts are. In simple terms, Taiwan Stock Index Futures (abbreviated as TAIEX futures) are futures contracts that track the movement of the Taiwan Weighted Stock Index, allowing investors to operate in both directions, utilize leverage, and trade during after-hours sessions. The “near-expiry” refers to the contract closest to its expiration date, covering the entire trading day (including regular hours and after-hours data).

The reason why TAIEX futures attract many investors is mainly because of the following advantages:

• Bidirectional Profitability: Opportunities to profit whether the market goes up or down
• High Leverage: Only a small margin (a fraction of the underlying investment) is required
• Low Cost: Transaction fees are much cheaper than stocks, potentially as low as 0.01%
• Extended Trading Hours: Trading for 19 hours daily, far exceeding the stock market’s 5 hours
• Risk Diversification: Using an index as the trading target to avoid individual stock risks

What Are the Trading Options for TAIEX Futures? Understanding Large and Small Contracts

The Taiwan Futures Exchange (TAIFEX) offers two main types of TAIEX futures contracts, commonly called “Large TAIEX” and “Small TAIEX.” Both track the same underlying—the Taiwan Weighted Stock Index—but differ significantly in contract size and margin requirements.

Comparison of Large TAIEX (TX) vs Small TAIEX (MTX)

Choosing which contract mainly depends on your capital size and risk tolerance. Most beginners start with small contracts and gradually gain experience before considering larger ones.

How to Calculate the Number of Contracts You Need?

This is a common oversight among beginners. Many mistakenly think that the deposited margin is the actual investment amount, but in reality, it’s much more.

Suppose you want to invest NT$2,340,000 in TAIEX futures. How many small contracts should you trade?

Calculation formula: Investment Amount ÷ Index Points ÷ Contract Multiplier = Number of Contracts Needed

NT$2,340,000 ÷ 15,600 (assuming index level) ÷ 50 (small contract multiplier) = 3 contracts

This calculation is crucial because it helps you understand your true risk exposure behind the margin, not just the margin amount itself.

TAIEX Futures Trading Process: From Placing Orders to Closing Positions

Step 1: Open an Account and Deposit Margin

Open an account with a futures broker and deposit the initial margin accordingly. Remember, you must be at least 20 years old to trade.

Step 2: Choose the Correct Contract

On the trading platform, look for options like “Near-expiry TAIEX” or “Small TAIEX Near-expiry.” “Near” indicates the closest expiry month (highest liquidity); “Full” includes both day and night trading data.

Step 3: Enter Your Order

Select the order type (most investors use ROD), input the quantity and price, then decide whether to buy or sell.

Step 4: Close the Position to End Trading

After executing your trade, close the position by executing an opposite transaction. If you bought TAIEX futures, sell the same amount to close; vice versa.

Example of Profit and Loss Calculation for TAIEX Futures

Understanding profit and loss calculations is fundamental to risk management. Here’s an example:

Scenario: Invest NT$400,000 in margin to trade 2 large TAIEX contracts (index at 15,600)

Note: NT$400,000 margin × multiplier 200 ÷ 2 contracts = unit margin; actual risk exposure is much larger than the margin amount itself.

Trading Hours and Roll-Over Mechanism for TAIEX Futures

TAIFEX provides two trading sessions daily:

• Regular Trading Hours: 8:45 AM – 1:45 PM
• After-hours Trading: 3:00 PM – 5:00 AM next day

Each TAIEX futures contract expires on the third Wednesday of the expiry month. All open positions are automatically settled at expiry. To maintain positions into the next month, you need to perform “roll-over”—close the near-expiry contract and open a longer-dated one. A more convenient method is to use “spread orders,” executing both trades simultaneously.

Essential Technical Analysis Tools for Short-term Trading

Since TAIEX futures are mainly traded short-term, technical analysis is the primary decision-making basis. Mastering the following tools can significantly improve your success rate:

Moving Averages (MA)

The most common are the 50-day and 200-day Simple Moving Averages (SMA), and the 20-day Exponential Moving Average (EMA). Basic interpretation:

• Price above major moving averages and trending upward → Uptrend signal
• Short-term MA (50-day SMA) crossing above long-term MA (200-day SMA) → Buy signal
• Price hovering below MA → Downtrend warning

Momentum Indicators

Relative Strength Index (RSI): Look for divergence between price and RSI. For example, when the index hits a new low but RSI shows higher lows, it’s called “bullish divergence,” often indicating a potential reversal.

MACD Indicator: Composed of MACD line, signal line, and histogram. When MACD crosses above the signal line, it’s a buy signal; crossing below indicates a sell. When MACD enters positive or negative territory, it signals bullish or bearish momentum.

Chart Patterns

Common patterns include Head and Shoulders, Double Top/Bottom, Ascending/Descending Triangles, Wedges, and Cup and Handle. These often suggest trend continuation or reversal, but traders usually wait for a breakout past key trendlines before executing trades.

Fundamental Analysis You Should Not Ignore

While short-term trading relies heavily on technicals, incorporating fundamental analysis can greatly improve decision quality. Two main angles:

1. Focus on Component Stocks

Taiwan Weighted Index is heavily concentrated, especially influenced by large component stocks like TSMC and other tech giants. Analyzing their earnings prospects and valuations can help infer index direction.

2. Track Macro Environment

Since the index is heavily weighted toward tech stocks, its movement is highly correlated with the global tech industry (up to 95% correlation with NASDAQ 100). Therefore, monitor global economic growth, interest rate changes, geopolitical risks, and other macro factors.

Risk Management: The Lifeline of Futures Trading

Compared to stocks, TAIEX futures carry higher risks due to two main reasons:

1. Leverage Effect: Both gains and losses are amplified; leverage can exceed 17 times
2. Unlimited Loss Risk: When shorting, the index can rise infinitely, making maximum loss theoretically unlimited

Therefore, before trading, you must do these two things:

Quantify Your Risk Tolerance

Ensure your investment amount is within your capacity. The key is to calculate the real investment behind the margin, not just the margin itself. For example, NT$184,000 margin to open 1 large TAIEX contract corresponds to an underlying investment of NT$3,120,000 (at 15,600 points).

Pre-Set Stop-Loss Plans

The most basic method is to set stop-loss orders. A more advanced approach is to use TAIEX options (TXO, multiplier NT$50) for hedging. When buying futures, simultaneously buy put options to limit downside risk; when selling futures, buy call options to cap upside risk. Note that 1 large TAIEX contract requires 4 TAIEX options contracts for full hedge.

Common Questions and Answers

Q1: My near-expiry TAIEX futures contract is about to expire. How can I quickly roll over?

Use the “spread order” feature to execute closing and opening positions simultaneously. Choose to buy to roll over long positions or sell to roll over short positions, entering the spread between months instead of index points.

Q2: Why is the TAIEX futures price always different from the index price?

Mainly due to dividends and interest rates of component stocks. Before expiry, when stocks pay dividends, the futures price tends to be lower than the index. As expiry approaches, the gap narrows, and they converge at expiration.

Q3: Can I set orders valid for more than one day?

Yes. If your trading platform supports “Good-Til-Canceled” (GTC) orders, they can remain active for months until executed or canceled manually.

Q4: Can I close a morning-opened TAIEX futures position during the night session?

Absolutely. Just select “Near-expiry TAIEX” or “Small TAIEX Near-expiry” when closing, and you can close any position opened during any session, as the underlying contract is the same.

Final Advice

TAIEX futures are both speculative and hedging tools; the key is how you utilize them. Starting with small contracts to accumulate experience, gradually refining your trading system and risk management framework, is the path every TAIEX futures investor should take. Remember: Margin is just an entry ticket; the real risks behind it are what you must always stay alert to.