Futures

A future is a standardised, exchange-traded forward contract – the binding obligation to buy or sell an underlying asset at a fixed price on a specific date.

Difference from options:

• Option: the RIGHT to buy/sell (the buyer can let it expire)
• Future: the OBLIGATION to buy/sell (MUST be fulfilled)

Who uses futures?

1. Companies (hedging):

• Lufthansa hedges kerosene prices months in advance
• Siemens hedges exchange rates for international orders
• Farmers hedge grain prices before the harvest

2. Speculators:

• Bets on price direction with leverage
• Very risky – margin calls possible on professional accounts

Important futures in Germany:

• DAX future (FDAX): €25 per point. With the DAX at 18,000 = contract value €450,000
• Mini-DAX future: €5 per point
• Euro-Bund future: Europe's most important bond future
• Euro STOXX 50 future: the eurozone's leading index

Margin example (DAX future):

Margin of approx. €20,000–25,000 for a contract value of €450,000 – that's leverage of ~20. A daily loss of 500 points = a €12,500 loss – half your margin.