What is a Cash-Settled Future (CSF) In PSX?
Imagine you bet on the price of a stock, like HBL or TRG, going up or down by a certain date.
A Cash-Settled Future (CSF) is simply an agreement to make that bet official.
The Key Difference is the Settlement:
Type of Contract | What happens at the end? |
Deliverable Cash Future (DCF) | You must physically buy or sell the shares you agreed to. |
Cash-Settled Futures (CSF) | You simply pay or receive the difference in cash. No shares change hands. |
It’s like settling a sports bet—you just exchange the money won or lost, based on the final score (the stock price).
How Does it Work? (The Simple Way)
You Take a Position:
You think Stock X will rise above Rs 50. You "buy" a CSF contract at Rs 50.
The Expiry Date Arrives:
If Stock X closes at Rs 55, you made a Rs 5 profit per share.
The Settlement:
The difference (Rs 5) is automatically credited as cash to your trading account. You never see the actual shares.
If the stock closed at Rs 45, the difference (Rs 5) is automatically deducted as a loss.
Why Trade PSX Cash-Settled Futures?
CSFs are popular for three main reasons:
No Delivery Hassle: You don't have to worry about buying, selling, or storing physical shares. It's clean and simple.
High Potential Return (Leverage): You put up a small security deposit (called 'Margin') to control a large block of shares. This means your potential profits (and losses) are magnified.
Easy Short-Selling: You can easily bet on a stock's price going down without needing to borrow the shares first.
Is Cash-Settled Futures (CSF) Shariah Compliant?
As the investor does not hold ownership of the contract, Cash Settled Futures are not approved for Shariah-conscious investors.
Coming Soon to PSX!
The Pakistan Stock Exchange (PSX) is launching these Single Stock Cash-Settled Futures contracts starting December 1st. Get ready to trade!