Could futures be a better way to manage market risk?

What do derivatives mean for EGX investors? Derivatives began trading on the Egyptian Exchange on 1 March 2026, introducing futures contracts to the local market for the first time and marking a structural shift in how investors can participate in the market.

What a derivative actually is: A derivative is a contract whose value is derived from an underlying asset. Instead of buying a stock in the spot market and waiting for it to rise, an investor can agree today on a price at which they will buy or sell in the future. Ahead of the launch, then-EGX Chairman and current Financial Regulatory Authority (FRA) Chairman Islam Azzam described derivatives in simple terms: “Derivatives are nothing but contracts. In the spot market you buy the stock at today’s price. In derivatives, you agree today on a future price.” (watch, runtime: 27:09)

How it works

If an investor expects the market to rise, they can enter a futures contract as a buyer. For example, if the EGX30 futures contract is trading at 50k points and the investor expects positive economic developments to lift the market, they can buy the contract. If the index later rises to 55k points, they profit from the 5k-point increase.

If an investor expects the market to fall, they can enter the contract as a seller at 50k points. If the index later drops to 45k points, then they can buy an identical contract to close the trade. Having effectively sold at 50k and bought back at 45k, they would earn the 5k-point difference as profit. Because they are trading a contract rather than the underlying shares, they do not need to own the asset before taking a bearish view.

who can trade, what is traded, and how gains are calculated

Access is not automatic. Retail investors must first pass an online multiple-choice exam at their brokerage firm before they are allowed to trade. The requirement is meant to ensure that participants understand leverage, margin calls, and daily mark-to-market settlement before entering binding contracts.

Trading takes place through licensed brokerage firms that hold a futures brokerage license from the FRA. Investors must open a dedicated derivatives sub-account and sign risk disclosure documents even if they already trade equities.

What’s trading in phase one: In the first phase of Egypt’s derivatives market, trading is limited to futures contracts on the EGX30 index, with plans to expand later to the EGX70 and individual stocks. Contracts are offered with three-month and six-month maturities. The exchange has set the multiplier at one-to-one, meaning each index point equals EGP 1 — If the index moves from 50k to 51k, the 1k-point increase translates into a gain of EGP 1k for the contract holder. Settlement on index contracts takes place in cash rather than through physical delivery.

Why this matters

Futures introduce a formal hedging tool to the Egyptian market. Counterintuitively, this could reduce volatility rather than increase it. Institutional and foreign investors often reduce exposure when they anticipate a market downturn. In a market without derivatives, that typically means selling equities outright. Large-scale selling can drain liquidity, widen spreads, and amplify downward moves.

Hedging instead of heading for the exits: With index futures, the alternative is to hedge instead of exit. A portfolio manager with a EGP 10 mn equity portfolio who expects short-term weakness can short the index while keeping underlying holdings intact.

A simple example: If the market index falls from 50k to 40k, the portfolio may lose value, but the short futures position would generate gains that offset part of those losses. “You can bring your beta close to zero,” Azzam said, referring to the ability to neutralize systematic market exposure without liquidating assets.

A shock absorber for markets: By allowing investors to stay invested while managing risk, futures can reduce the need for panic selling during periods of stress. This helps preserve market depth and liquidity. Instead of exiting the market, institutions can hedge temporarily and unwind those hedges when conditions stabilize. In that sense, derivatives can function as a shock absorber and help markets keep their footing when volatility rises.

Closing a long-standing gap: The absence of a derivatives market has historically been cited as one of the structural gaps limiting the EGX’s appeal to international institutions. Many global funds require access to hedging tools as part of their risk frameworks. Without futures, exposure to Egypt meant either full market risk or full exit. The introduction of derivatives removes that binary choice. It could improve market ratings, broaden institutional participation, and deepen foreign exposure.

It works in rising markets too: The mechanism works both ways. In bullish phases, investors can use long futures positions to increase exposure efficiently without immediately reallocating large amounts of capital in the cash market. This can enhance returns and add incremental trading activity without forcing large spot transactions.

The leverage factor: At the same time, futures introduce leverage. Traders do not pay the full notional value of the contract. Instead, they post an initial margin, typically around 10–15% of the contract’s value.

A margin example: Consider a contract with a notional value of EGP 100k. The trader might deposit roughly EGP 10k–15k as initial margin. A 5% move in the underlying would equal EGP 5k in profit or loss, a swing that can represent a large percentage of the margin posted.

Execution and settlements

Daily settlement discipline: Losses and gains are realized daily through mark-to-market settlement. Profits are transferred from the losing party’s account to the winning party’s account each day, reducing systemic risk.

Margin calls: If losses push the account below the maintenance level, the trader will receive a margin call and must deposit additional funds. Failure to do so can result in forced liquidation.

How positions are closed: Positions can be closed before maturity by entering an offsetting trade, with exposures netted through the clearinghouse. Most contracts globally are closed before expiry rather than held to maturity.