Derivatives are essentially contracts that derive their value from an agreed-upon underlying asset, index or commodity. Common underlying instruments include bonds, commodities, currencies, interest rates, market indices and stocks.
Why Use Derivatives?
- Leverage provides a capital-efficient way to gain exposure to underlying assets. This creates greater volatility which amplifies gains and losses
- Derivatives allow investors to take advantage of price movements in the underlying assets
- They are typically liquid and easily traded
- They serve as a tool for Portfolio diversification
- The added benefit short-selling afford users the opportunities to benefit from downward price movements
Who is this for?
Derivatives are suited to both professional and private investors who wish to hedge an open position or gain exposure to assets and markets without necessarily holding the underlying assets. Derivatives may also be traded by speculators with the sole purpose of making profits on short-term price movements.
NGX Derivatives Market Macrostructure
NGX Equity Index Futures Fees Structure
| Trading Fees on Derivative Transactions | ||
| Fees | Transaction Cost (% of Notional) | Fee Description |
|---|---|---|
| Clearing Fee (NGCL) | 0.040% | 0.04% of Notional Value of the Contract on Both Sides |
| Exchange (NGX) | 0.005% | 0.005% of Notional Value of the Contract on Both Sides; subject to minimum of A floor of ₦0.01 per contract |
| **Regulator (SEC) | 0.005% | 0.005% of Notional Value of the Contract on Both Sides; subject to minimum of A floor of ₦0.01 per contract |
| *Trading Licence Holder | 0.080% | Capped at 0.08% of Notional Value of the Contract on Both Sides |
| *Investor Protection Fund | 0.020% | 0.02% of Notional Value of the Contract on Both Sides |
| Total | 0.150% | 0.15% of Notional Value of the Contract |
| Other Charges to the Investor | ||
| Fees | Fee Description | |
|---|---|---|
| Position Management Fee (NGCL) | 0.02% of Average Monthly Nominal Value of Open Position. | This is the cost of keeping the position open over a period to be charged monthly to the Clearing Member. Which shall subsequently be passed to the TLH firms and then to the investor. |
- NGX Derivatives Trading Fees was based on benchmarking against pricing regime in international derivative markets as well as domestic OTC market.
- SEC fees are indicative and will be communicated formally by the SEC.
- TLH fees are proposed to be capped at 0.1% with 0.02% going to the Investor Protector Fund for the product.
