Understanding Futures Contracts in Pakistan

In Pakistan's growing financial landscape, the term “futures contract” is no longer unfamiliar. With the increasing participation of retail and institutional investors in both the Pakistan Stock Exchange (PSX) and Pakistan Mercantile Exchange (PMEX), futures trading is gaining traction as a key instrument for hedging, speculation, and portfolio diversification.

Whether you're an investor interested in stock index futures, a trader looking to speculate on gold prices, or a corporate entity aiming to hedge against currency fluctuations, understanding futures contracts is essential to making smarter financial decisions.

Let’s explore what futures contracts are, how they work, and how you can trade them in Pakistan with Azee Securities, your trusted partner in regulated financial markets.

What is a Futures Contract?

A futures contract is a legal agreement to buy or sell an underlying asset at a predetermined price on a specified future date. Unlike a spot market transaction where the asset is exchanged instantly, futures contracts are standardized agreements traded on exchanges like PMEX and PSX.

These contracts derive their value from an underlying asset — which could be:

• Commodities (e.g., gold, crude oil, wheat)
• Currencies (e.g., USD/EUR futures)
• Stock Indices (e.g., S&P Index)
• Individual stocks (e.g., HBL, ENGRO futures)

Futures are part of a broader class of financial instruments known as derivatives.

Example: Hedging Using Futures

Suppose you're a food manufacturer in Pakistan, and wheat is a critical input for your production. Due to the volatility of global commodity prices, you fear that wheat prices might rise significantly in the next two months.

To manage this risk, you enter into a wheat futures contract on PMEX to lock in today’s price for delivery in two months. If wheat prices go up, you’re protected. Conversely, if prices fall, you still pay the agreed-upon higher price — that’s the trade-off for risk protection.

This practice is called hedging, and it’s widely used by industries, exporters, and even governments.

Futures Trading for Speculators

Futures aren’t just for hedging. They are also used by speculators — traders who aim to profit from price fluctuations without owning the underlying asset.

For example, if you believe that gold prices will increase, you can enter a long futures position on gold at PMEX. If the price rises, you sell the contract for a profit — without ever taking physical delivery.

Similarly, you can short-sell futures if you expect prices to drop. This flexibility makes futures ideal for directional trading.

Leverage and Margin: The Power (and Risk) of Futures

Futures trading allows participants to use leverage, meaning they only need to deposit a small percentage of the contract’s value — called initial margin — to control a much larger position.

For example, if the margin requirement is 10% on a PKR 1,000,000 gold futures contract, you only need PKR 100,000 in your account to open a position. While leverage increases profit potential, it also magnifies losses. If the market moves against you, your broker may issue a margin call to deposit more funds.

At Azee Securities, we help you manage these risks through robust risk management tools, alerts, and expert guidance.

Types of Futures Available in Pakistan

In Pakistan, you can access various types of futures contracts through regulated exchanges:

• Index futures: e.g., KSE-30 Index Futures
• Single stock futures: e.g., UBL, LUCK, OGDC
• Monthly contracts with expiry on last Thursday of the month
• Cash-settled, no physical delivery

• Gold, silver, crude oil, wheat, sugar
• Currency futures: e.g., USD/PKR, EUR/PKR
• Commodities traded in USD or PKR denominations
• Available in multiple lot sizes (mini/micro)
• Physically settled (on request), but most traders square off before expiry

Contract Features You Should Know

• Standardized terms: Quantity, quality, delivery date
• Expiry date: Monthly/quarterly cycles
• Mark-to-market: Daily settlement of profit/loss
• Lot size: Defined per contract (e.g., 100 barrels of crude oil)
• Liquidity: Popular contracts have better volume/spreads

Futures vs Forwards

Though similar, futures differ from forwards:

Common Myths About Futures

• “Futures are only for professionals”
  Truth: With proper knowledge and support (like Azee’s), even retail traders can trade safely.
• “You must take delivery”
  Truth: Most contracts are closed out before expiry — no delivery is needed.
• “Guaranteed profits”
  Truth: Futures involve risk. Success depends on strategy and discipline.

Why Trade Futures with Azee Securities?

• Regulated broker, licensed by SECP
• Access to both PMEX and PSX derivatives
• Real-time margin monitoring and risk alerts
• Research-backed trade ideas and advisory
• Transparent pricing and prompt support

Quick Recap

• Futures contracts are agreements to buy/sell an asset at a set price on a future date.
• They are used for hedging risks and speculative trading.
• In Pakistan, you can trade futures via PMEX (commodities/currencies) and PSX (stocks/index).
• Leverage makes futures powerful but risky — proper margin management is essential.
• Futures are standardized, exchange-traded, and regulated — making them safer than informal contracts.
• With Azee Securities, you gain expert support, education, and seamless access to futures markets.

Get Started with Azee Securities

Ready to start your investment journey with Azee Securities? Open a Stock Trading Account and gain access to the Pakistan Stock Exchange (PSX). Let Azee Securities help you make informed decisions. Our expert advisors, advanced trading platform, and real-time market data ensure you stay ahead of the curve.

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