Futures contracts — what are they

What is a futures contract?

A futures contract is an agreement between two parties to buy or sell a specific asset in the future at a predetermined price. It's standardized and traded on exchanges.

Unlike options — futures oblige both parties to execute the transaction.

How do futures work?

Mechanism

1. Buyer (long) commits to buy the asset at a specific time
2. Seller (short) commits to sell
3. Price is set at the moment of contract execution
4. In practice, most contracts are closed before maturity (cash settlement)

Margin deposit

You don't need to pay the full contract value. A deposit is sufficient — usually 5-15% of value. This creates financial leverage.

Example: WIG20 contract worth 50,000 PLN requires ~5,000 PLN deposit. Leverage 1:10.

What are futures contracts for?

Popular underlying instruments

• Stock indices — WIG20, S&P 500, DAX
• Currencies — EUR/USD, USD/PLN
• Commodities — oil, gold, wheat
• Bonds — e.g. US Treasury futures
• Cryptocurrencies — BTC, ETH (on CME)

Who uses futures?

• Hedgers — companies hedging against price changes (e.g. airlines hedging fuel prices)
• Speculators — earn from price changes, accepting risk
• Arbitrageurs — exploit price differences between markets

Risk

• Leverage — losses can exceed deposited margin
• Margin call — if deposit falls below minimum, broker requires additional payment
• Liquidity — some contracts have low liquidity
• Rolling — need to close expiring contract and open new one (contango costs)

Futures vs options

Futures on GPW

On the Warsaw Stock Exchange (GPW) available contracts include:

• WIG20 index
• Selected stocks (KGHM, PKO BP, PKN Orlen)
• Currencies (USD/PLN, EUR/PLN)

How Freenance can help

Freenance allows including futures positions in the complete portfolio picture, tracking exposure and leverage impact on your finances.

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