China's securities watchdog on Friday issued a draft regulation on the requirements for investors to trade stock index futures.

Investors are required to have a minimum of 500,000 yuan to trade in index futures and must have experience in simulated index futures trading or commodity futures trading, according to the draft published by the China Securities Regulatory Commission (CSRC), which is open to public comment until Jan 22.

It requires investors to trade index futures during the trial period for at least 10 trading days and must engage in at least 20 transactions. Investors will also be asked to complete a training course and pass a test conducted by securities firms.

"Unlike stocks and bonds, the index futures are a financial tool of high leverage and risk that require professional knowledge and trading experience, and are therefore suitable for average retail investors," said an official with the CSRC.

"The purpose of the regulation is not to restrict investors from trading but to protect their fundamental interests," he added.

Investors will also be evaluated based on four criteria including age and educational background, trading experience, financial status and their personal credit record.

"The regulation has significant implications," said an official with the Shanghai-based China Financial Futures Exchange (CFFEX).

"Those requirements are the basic prerequisites for an investor to trade index futures and they may help maintain market stability," added the official from CFFEX, which has been granted approval from the CSRC to launch the country's first stock index futures.

Analysts say one major potential risk that index futures have for investors is that they could lose their entire capital while also facing the risk of owing huge debts to securities companies.

In order to control risks, the CSRC may hike the margin requirements for index futures from 10 to 12 percent. It will also significantly reduce the single-day maximum holding of futures contracts to 100 from 600 during the trial period.

Trial trading of index futures has been taking place at CFFEX for three years. CFFEX has been conducting trading systems tests and running a series of programs to educate investors about potential risks.

Around 850,000 investors have so far opened accounts to participate in the simulated trading and very positive results have been achieved, the CFFEX official added.