Derivatives

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What are Equity Futures?

Equity Futures is a financial contract with a value agreed upon by two parties. These contracts derive their value from the value of the underlying asset and are based on the value of those underlying asset. For equity futures, the underlying instrument are shares, like EMAAR or DEWA.

What is the difference between Equities and Futures?

With Equities, the investor owns the stock of a listed company, they hold voting rights and are entitled to receive cash dividends. In equities, an investor can only go short in for selected equities subject to borrowing requirements.
Whereas with Futures, there is no ownership of the stocks, the investor has no voting rights and is not entitled to receive cash dividends. Going short for futures is possible and can be achieved by taking a sell position in the futures contract compared to going short in the underlying share.

What are the benefits of trading in Equity Futures?

• Incentive to make profits with minimal amount of capital investment in the form of margin instead of full contract value. However, these instruments are subjected to higher risk as well.
• Provides liquidity, enables price discovery in the underlying market.

How can I identify between Equities and Futures in DFM?

Equities and Futures are identified separately.
Futures will have the word “FUT” to identify it as the Futures ticker.
For example, Futures on Emaar Properties for the September 2020 expiry will be “EMAAR FUT – September 2020”.

How to read the Futures Symbol?

The Futures ticker will be identifiable with the Product Code, Month Code and Expiry Year. For example, Futures on Emaar Properties for September 2020 expiry will be represented as EMAARU20 where the “U” denotes the month of September (as per the below table), and the expiry year is 2020. 

Month	Month Code
January	F
February	G
March	H
April	J
May	K
June	M
July	N
August	Q
September	U
October	V
November	X
December	Z

How can I start trading in DFM Equity Futures?

We make trading Futures easy for you. No matter your nationality or which country you are based in, you can apply to trade DFM Futures.

• As a first step, if you are over 18 years of age you can open a trading equity and derivatives account with any of the DFM derivatives brokers. All trading on DFM is through brokers and a list you can find here If you already have an account for trading shares, simply adding derivatives trading is done with your existing broker if they are a derivatives member
• Next, make sure your account has a balance for the margin required for trading DFM futures contracts. For the DFMGI future this is 5% for each contract, or AED 1800 dirhams per contract.
• Place an order with the broker to either buy or sell the equity Futures contract by calling your broker, internet or mobile trading).
• The order will be sent to the DFM derivatives market and executed if a matching price is available. The trade will be registered for clearing and settlement with Dubai Clear.
• Any profit or loss made due to a change in the market price of the Futures contract is settled after the close on a daily basis as Variation Margin.
• Once a position is closed, any Initial Margins related to this position, after any profit or loss, will be released.
• For investors holding the contract to expiry, the contract will be automatically closed and settled by Dubai Clear with the final settlement price.

Investors should continue to educate themselves about the opportunities and risks associated with futures trading. DFM Investors can access videos and more on the DFM Equity Futures resource center.

Do I need a NIN to trade DFM Equity Futures? 

Yes, a DFM Investor Number (NIN) is required to trade DFM Equity Futures. Details of how to obtain a NIN are available on the “How To Trade” webpage at DFM website.

What currencies are DFM Equity Futures traded in?

DFM Equity Futures are currently traded in AED. The Micro DME Oman Crude Oil contract is traded in USD. The contract specification will always identify the currency for the contract.

Who can trade DFM Equity Futures?

All types of investors are allowed to trade on DFM Equity futures. Example, all Individuals, institutional, funds, corporate clients, etc. A suitability assessment will be completed by the licensed DFM Equity Futures Broker. 

What are the trading hours for DFM Equity Futures?

10:00 am – 3:00 pm, Monday - Friday.

 Can I enter a sell order for Futures without having a long position?

Yes, going into a short position without a long position is possible. Short selling allows you to anticipate a market correction

Are there any Foreign Ownership Limits (FOL)?

No, any foreign ownership limits on the company’s equity will not apply on the Futures contract.

Do I get cash dividends by holding Futures contracts? 

No, investors should note that long position holders in Futures contracts are not entitled to any ordinary cash dividend paid on underlying shares. The price of the Futures contract discounts any expected upcoming dividend.

What is the role of a Market Maker?

A market maker provides liquidity to the market. Market makers are financial institutions that simultaneously offer both Bid and Ask prices for the contract.

They provide investors with the opportunity to enter and exit positions in the DFM traded Futures. Currently (June 2023) the DFM Futures’ market has three market makers quoting a minimum of 5 contracts on each buy ad sell-side of the market. This guarantees a minimum liquidity to investors.

How are Equity Futures Contracts settled?

All Equity Futures Contracts are cash settled on a daily basis for the profit or loss calculated based on the Daily Settlement Price which is specified in the contract specification of the product.

On the expiry day of the contract all open positions are expired/closed and positions are settled for the profit and loss using the Final Settlement price on the expiry day, which will be the closing price of the underlying stock or index.

What happens on the expiry date of the future?

On expiry date, the Futures Settlement Price is calculated based on the stock or index closing price. Any profit or loss is calculated based on this price and settled accordingly. All open Futures Positions expire on this date and Initial Margins are returned. Investors can ‘rollover’ their Futures position by closing their open position on or prior to maturity and entering into a new contract to maintain their positions in the Futures.

What happens if I don’t close my position on the last trading day?

Your position will be automatically closed and settled by the clearing house on the last trading day based on the final settlement price. The investor will be charged expiry settlement fees for any open positions closed by the clearing house.

What are the risks involved in trading Futures?

Trading in Futures carries risks for investors. It is recommended that investors seek financial advice before trading if they have limited experience. Risks include:
Leverage – Magnification of the effect of the capital can lead to significant losses, considerably more than the movement of the underlying asset.
Close out – Any open contracts are automatically closed on the expiration day by the clearing house at the Final Settlement Price.
Margin calls – Your broker may make margin calls during the term of the future, which require immediate cash settlement. Any failure to meet this margin call may result in liquidation of your positions with or without your consent.
Dividend uncertainty– Holders of Futures contracts do not receive any ordinary dividends paid by the company on underlying shares. Investors must also consider that expected dividends declared and factored into Futures prices are not certain and this may affect the profit or loss made by investors on their Futures trading.

What do the terms ‘Long’ and ‘Short’ position mean?

A Long Position means that you have bought one or more futures contracts resulting in a net position which profits if the market goes up. A Short Position means that you have a position where you have net sold more contracts which profits if the market drops.

Is there an upper and lower limit of any contract?

Yes, there are safeguards to limit excessive price movements. DFMGI Futures have daily price limits set at 5% above or below the previous closing price. For single Stock Futures and Oman Oil DME Mini Contracts futures applies price limits too for around 25% and can be checked for the specification online here: https://www.dfm.ae/investing/products/derivatives 

How does DFM structure the contracts for Equity Futures?

Equity Futures contracts have a 3-month trading cycle: the near month (one), the next month (two), and the far month (three).
New contracts are introduced on the second Thursday of the near month. Each contract expires on the third Thursday of its expiry month, and a new three months contract would be introduced a week earlier of its expiry date. By this way, before the expiry day of each contract, there will be 4 contracts available for trading in the market for one week.
For example, if a new future contract listed on October 08, 2020, there would be three contracts: The first contract expires on November 19th, 2020, the second contract expires on December 17,2020, while the third contract expires on January 21 2021. On 12 November 2020, a new contract would be introduced to be expired on the 3rd Thursday of February 2021. Accordingly, there will be four contracts available for trading during the week preceding the expiry date of near month contract.

What do you mean by ‘Contract Size’?

Contract (lot) size represents the minimum number of units of the underlying Equities or index you buy or sell when 1 contract of Futures is bought or sold. For example, if the product specification of Single Stock Future says that the Contract size is 100 then it means when 1 contract is bought or sold, it is equivalent of buying or selling 100 shares of that underlying.

What is the ‘Initial Margin’?

To take Long or Short position in a future contract, the client needs to deposit a minimum amount of acceptable collateral as an Initial Margin with the Broker. Initial Margin rates are as prescribed by Dubai Clear. However, Brokers have the right to ask for a higher Initial Margin depending on the risk profile of the client. When the client closes the position (sell to close Long position and buy to close Short position), the balance of the Initial Margin is released.
Example:
On September 1, 2020, an investor buys a 200 contracts of XYZ company at a price of AED 2.00 September 2020 expiry.
Contract Size is 100 and Initial Margin is AED 20 per contract.
Expiry day of the contract will be 17 September 2020
The contract value is AED 40,000 (200 * 2 * 100)
The investor pays only AED 4,000 as Initial Margin (200*AED20).

What is the ‘Variation Margin’?

After the close of each trading day and if the market in your future contract has moved, you either have a gain or loss in your account. Variation Margin is the process of crediting or debiting this profit or loss from your account. For example, if you bought a stock at AED 2, until you sell the stock all your gains and losses are unrealized. But if you bought the futures contract at AED 2, and the price went up by the end of the day, you will have a cash gain realized in your account. If the price went down, you will have a cash loss in your account.

There are no overnight finance charged to your account, a distinct difference with Contracts for Difference (CFDs)

What ‘Open Interest’ means?

Open Interest is the total number of outstanding contracts that are held by the market participants at the end of each day.
If both parties to the trade are initiating a new position (one new buyer and one new seller), open interest will increase by one contract. If both clients are closing an existing or old position (one old buyer and one old seller), open interest will decline by one contract. If one old client passes off his position to a new client (one old buyer sells to one new buyer), open interest will not change.
To determine the total open interest for Equity Futures, we only need to know the total from one side, buyers or sellers, and not the sum of both.

What is the ‘Expiration Day’?

It is the last day on which the contracts expire. Futures contracts expire on the third Thursday of the expiry month. If the third Thursday is a trading holiday, the contracts expire on the previous trading day.

What an Investor should be aware of before trading in Equity Futures?

Investors must understand that investment in Futures has an element of risk and is generally not an appropriate avenue for someone of limited resources (limited investment), limited trading experience, and low risk tolerance. An investor should therefore carefully consider whether such trading is suitable for him or her in the light of his or her financial position. An investor must accept that there can be no guarantee of profits or no exception from losses while executing orders for purchase and / or sale of Future contracts, Investors who trade in Futures at the Exchange are advised to carefully read the Risk Disclosure Document and the details contained therein. This document is given by the broker to his clients when opening the futures account. The investor must read this document, understand the implications, and sign it. The document clearly states the risks associated with trading in Equity Futures and advises investors to exercise the utmost caution before entering into the market.

What is DFMGI Futures?

DFMGI Futures refers to futures contracts based on the DFM General Index (DFMGI), which is the benchmark index for the Dubai Financial Market (DFM) designed to track the performance of the most liquid, and amongst the largest companies listed on the market. It allows investors to speculate on the future price movements of the DFMGI and provides a tool for portfolio diversification and risk management.

How can investors benefit from DFMGI Futures?

It offers investors a simple, cost-effective way to trade their view on the DFM market. It also provides investors with an efficient tool to hedge their DFM equity portfolio risk.

How is the contract size and value determined?

The contract size for DFMGI Futures is 10 units. The contract value is calculated by multiplying the DFMGI Futures price by the contract size. For example, if the DFMGI Futures price is 3,500, the contract value would be AED 35,000.

Who is eligible to trade DFMGI Futures?

All investors who have a NIN (National Identification Number) with DFM are eligible to trade in DFMGI Futures and all other derivatives products i.e. Single Stock Futures SSF and DME Micro Oman Crude Oil futures OMOIL.

1. If an investor has an account with one of the DFM approved derivatives members, then they can trade DFMGI futures through the same account. There are no additional requirements.
2. For new investors, to start trading index futures, investors first need to register as a client with a DFM derivatives member and fulfill the Know Your Client (or KYC) requirements.
3. Once investors sign up with a member, they will be given a risk disclosure statement to sign. This will allow them to trade in derivatives on DFM.

Once an investor deposits an initial margin with their member, they will be ready to start buying or selling futures on DFM.

What are the trading hours for DFMGI Futures?

DFMGI Futures can be traded from Monday to Friday, between 10:00 and 15:00 UAE time. Please refer to the Trading Manual for more detailed information on the trading phases.

How are DFMGI Futures settled?

DFMGI Futures are settled through cash settlement, which means the settlement is made in cash rather than through physical delivery. The daily settlement price is determined based on the theoretical future price of the underlying index, while the final cash settlement price is based on the closing price of the underlying index on the last trading day.

Are there any price limits set in place to protect against extreme price movements?

Yes, there are safeguards to limit excessive price movements. DFMGI Futures have daily price limits set at 5% above or below the previous closing price. However, the market has the discretion to adjust the price limits if there is a significant change in the underlying DFMGI index.

What is the expiration and listing process for DFMGI Futures?

The expiration, or last trading day, for DFMGI Futures is set as the 3rd Thursday of the expiry month. If the 3rd Thursday is not a business day, the last trading day will be the business day prior to the 3rd Thursday. New contract series will be listed on the 2nd Thursday of the expiry month, which is the Thursday preceding the expiration day.

Is there a maximum order size or position limit for DFMGI Futures?

The maximum order size for DFMGI Futures is set at AED 20 million in value. Direct deals, which are trades conducted outside the order book, are limited to 300 lots. Additionally, there is a position limit at the member level, which is the higher of 10,000 lots or 30% of the total open interest in the market.

What is the contract series for DFMGI Futures?

Contract Series is up to 3 consecutive months contracts. Example: April 2023, May 2023 and June 2023.

What is the ‘Initial Margin’ for DFMGI Futures?

By taking Long or Short position in a future contract, the investor needs to deposit a minimum amount of acceptable collateral as an Initial Margin with the member. Initial Margin rates for DFMGI Futures is 5% as prescribed by Dubai Clear. However, members have the right to ask for a higher Initial Margin depending on the risk profile of the client. When the client closes the position (sell to close Long position and buy to close short position), the balance of the Initial Margin is released.

Example:

On September 1, 2023, an investor buys a 1 contract of DFMGI Futures at a price of AED 3,500 September 2023 expiry.

• Contract Size is 10 and Initial Margin is 5% per contract.
• Expiry day of the contract will be 17 September 2023
• The contract value is AED 35,000 (1 * 3,500 * 10)

The investor pays only AED 1,750 as Initial Margin (35,000*5%).

Is short selling allowed?

Yes. Selling in advance (shorting) allows an investor to profit from a stock or index that is going falling in price.