Equity futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price.

Instrument category

Equity financing

Implementation status

Moderate - tried and tested

Enabling conditions and success factors
  • Reasonably sophisticated financial market needed.
Instrument benefits
  • Investors can use futures contracts to speculate on the direction in the price of an underlying asset.
  • Companies can hedge the price of their raw materials or products they sell to protect against adverse price movements.
  • Futures contracts may only require a deposit of a fraction of the contract amount with a broker.
Challenges and risks to implementation
  • Investors have a risk that they can lose more than the initial margin amount since futures use leverage.
  • Investing in a futures contract might cause a company that hedged to miss out on favourable price movements.
  • Margin can be a double-edged sword, meaning gains are amplified but so too are losses.

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