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What is futures trading and how does it work?

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Short answer

A futures contract is an agreement to buy or sell an asset at a fixed price on a future date. Traders put up only a margin deposit, so futures are leveraged: small price moves create large gains or losses. In Pakistan, futures trade on PSX (stock futures) and PMEX (gold, oil, currencies, indices); crypto exchanges offer "perpetual" futures that never expire and charge funding payments.

How a futures contract works

  1. Buyer (long) and seller (short) agree a price for a set quantity and expiry month.
  2. Both deposit initial margin with the exchange's clearing house — a fraction of the contract value.
  3. Each day profits and losses are settled (marked to market): your account rises or falls with the price.
  4. If losses take your account below the maintenance margin you must add funds or the position is closed.
  5. At expiry the contract is settled in cash or by delivery, or traders close or roll it before then.

Futures available to Pakistanis

MarketProductsRegulator
PSXDeliverable futures (DFC), settled by delivering shares, and cash-settled futures (CSF) on selected shares, where a contract is usually 500 shares and only the price difference is paidSECP
PMEXGold (including tola contracts), crude oil, currencies, US index futures, agricultural commoditiesSECP
Offshore crypto exchangesPerpetual and dated crypto futures, often with very high leverageNot regulated in Pakistan

Why people use futures

  • Hedging: an exporter, jeweller or fund locks in a price to reduce risk.
  • Speculation: traders bet on direction with less capital than buying outright.
  • Short selling: futures make it simple to profit from falling prices — and to lose if they rise.

Crypto perpetuals are different

Perpetual futures have no expiry. To keep their price close to the spot price, longs and shorts pay each other a funding rate every few hours. Leverage of 50x–100x is common, and liquidation engines close positions automatically, which is why crypto falls often cascade. These platforms are not licensed in Pakistan.

Risks and the halal question

Because futures are leveraged and marked to market daily, losses can exceed the margin you deposited. Most Islamic scholars consider conventional futures impermissible: both sides of the sale are deferred, the seller often does not own the asset, and contracts are usually closed for a price difference rather than delivery. Islamic finance uses alternatives such as salam and istisna for genuine forward needs.

Roman Urdu mein jawab

Futures trading kya hai?

Futures contract mein aaj ki tay shuda qeemat par kisi cheez ko aage ki tareekh par khareedne ya bechne ka muahida hota hai. Sirf margin jama hota hai, is liye leverage hota hai aur chhoti harkat se bara nafa ya nuqsan. Pakistan mein PSX (stock futures) aur PMEX (gold, oil, currencies) par futures hain; crypto perpetuals yahan regulated nahi.

Frequently asked questions

Can I trade futures on PSX?

Yes. PSX lists deliverable and cash-settled futures on selected shares and index futures. You trade them through your broker with additional margin requirements.

What is the difference between futures and spot?

Spot is buying the asset now and owning it. Futures are contracts for a later date, traded on margin, usually closed before delivery.

What is a funding rate?

A periodic payment between long and short traders on crypto perpetual futures that keeps the contract price near the spot price.

Are futures halal?

Most scholars say conventional futures are not, because of deferred exchange on both sides and the lack of ownership and delivery. Ask a scholar about specific contracts.

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Sources

  1. PSX — Cash-Settled Futures (CSF) investor handbook
  2. PMEX — A Guide to Futures Trading at PMEX
  3. ESMA — Restrictions on CFDs and binary options

This article is general education, not financial, legal or religious advice. Rules change; check the linked primary sources and consult a qualified adviser or scholar before acting. Trading can lose you more than you expect.