DAX future

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The DAX future is an unconditional forward transaction ( future ) on the German share index (DAX30). To illustrate this, the DAX future can be viewed as a bet on the level of the DAX30 on a specific day. The value of the contract fluctuates by € 25 per point on the DAX30. At the time of launch, the respective contract has a term of 9 months. The next three maturity months are traded. The DAX future was introduced on November 23, 1990 on the German futures exchange under the product code FDAX. Today it is traded on EUREX .

Course formation

The price of the index future is determined by supply and demand. The DAX future is usually quoted higher than the DAX30. The further the expiry date is in the future and the higher the money market interest rate up to the expiration date, the greater the difference. The future price can be determined using: cash tax + cost of carry (cost of carry = hypothetical refinancing costs up to the expiration date of the future). At the expiry date, the levels of the DAX future and DAX30 correspond.

Expiration date

The expiry date of the DAX futures contracts is generally the third Friday of the delivery month; however, if this Friday is a public holiday, the contracts expire on Thursday. This means that the expiry dates (usually) are each year on the third Friday in March, June, September and December. Since other options expire on these dates and the markets can be restless due to attempts to influence prices by market participants, these days are also called the triple witches' Sabbath . According to the conditions of EUREX , the buyer is not entitled to delivery on the expiry date of a future . For this reason, any gains or losses achieved are offset in cash. This process is known as cash settlement .

risk

The risk is theoretically and practically limited for the buyer and theoretically unlimited for the seller. The buyer can lose a maximum of 25 times the current future value, for example with a DAX30 level of 7,000 points 7,000 * 25 € = 175,000 €. If the price rises, the seller can also lose € 25 per index point. Since there is no upper limit for the DAX30 price level, the seller can theoretically suffer unlimited capital losses. Since a futures trader only has to deposit a relatively small part of the possible loss as security (the so-called margin ) with his bank, large transactions with relatively small capital contributions are made possible.

example

The buyer buys a DAX futures contract with 7,000 points from the seller. This means that both parties have the right to have 25 "DAX 30 shares" change hands for € 7,000 each on the expiry date.

Scenario 1: On the expiry date, the DAX30 is at 7,000 points

  • The seller would have to purchase 25 shares for € 7,000 each and hand them over to the buyer for € 7,000 each.
  • The buyer would receive 25 shares for € 7,000 each and could sell them for € 7,000 each.
  • Since neither party is profitable from these operations, no payments will be made.

Scenario 2: On the expiry date, the DAX30 is at 6,700 points

  • The seller would have to buy 25 shares for € 6,700 each and hand them over to the buyer for € 7,000 each. This gives him a profit of (7,000-6,700) * 25 = € 7,500
  • The buyer would receive 25 shares for € 7,000 each and could sell them for € 6,700 each. This results in a loss of (7,000-6,700) * 25 = € 7,500 for him
  • Since there are no DAX30 shares, compensation is made by paying € 7,500 from the buyer to the seller.

Scenario 3: On the expiry date, the DAX30 is at 7,300 points

  • The seller would have to purchase 25 shares for € 7,300 each and hand them over to the buyer for € 7,000 each. This results in a loss of (7,300-7,000) * 25 = € 7,500 for him
  • The buyer would receive 25 shares for € 7,000 each and could sell them for € 7,300 each. This gives him a profit of (7,300-7,000) * 25 = € 7,500
  • Since there are no DAX30 shares, compensation is made through a payment of € 7,500 from the seller to the buyer.

So much for the theoretical background. In practice, DAX futures are settled daily at 5:30 p.m. ( settlement price ). Assuming that the DAX future opened at 7,000 would then be at 7,050 at this point in time, the buyer's EUREX account would be credited with 25 × 50 € = 1,250 €. The seller would be charged € 1,250. This is done time daily until the Future either closed out ( closing ) or just enters the decay. Then, for the last time, a balance is created based on the previous day's settlement and the DAX rate at 1:00 p.m.

literature

Gregor Wurm: Compact knowledge of banking management. 15th edition. Bildungsverlag EINS. Troisdorf 2007, ISBN 3823709216