The big picture
Commodity exposure can behave differently from company shares, but adding a futures position does not automatically make a portfolio safer. PMEX provides a regulated futures-market framework; the actual rights, funding and settlement obligations depend on the contract. This topic explains gold, silver and crude-oil risk as analytical examples, with no assumption that a particular product is currently available or suitable. It replaces the claim that buying gold futures always protects wealth during currency weakness.
Core concepts
Learning objectives
- Read the essential terms of a commodity contract.
- Calculate a simplified futures gain or loss and its effect on deposited funds.
- Explain why gold, silver and oil have different drivers.
- Assess a proposed hedge together with its funding and execution risks.
Identify the exposure and legal contract
1.1 Futures are not the same as physical ownership
A futures contract creates obligations defined by its specification. It is not automatically ownership of a stored bar of gold or physical oil. Read the underlying reference, quotation currency, contract unit, multiplier, tick size, expiry and settlement method. Cash settlement, delivery arrangements and product-specific funding can differ. PMEX and PSX provide different markets and access arrangements; an equity account does not itself establish permission or readiness to trade commodity futures.
1.2 Product terms and verified access
Use PMEX’s official education, current specifications and broker-verification routes. Confirm applicable registration, client agreements, funding instructions and complaint contacts through trusted channels. Do not infer retail eligibility, contract availability or platform features from an old article. The learner should be able to state precisely what one contract controls and what obligations remain at expiry before considering a transaction.
Step-by-step method
- Identify the current contract and its full specification.
- Verify the intermediary and the applicable account arrangements.
- Explain quotation, unit, expiry and settlement in plain language.
Two gold-related products have different unit sizes and funding requirements. The same general commodity name does not make their capital needs or delivery obligations interchangeable. The practical exercise begins with the actual specification, not a generic gold-price chart.
Separate notional exposure from margin
2.1 The futures payoff and multiplier
For a simple linear long futures position, gain or loss is the price change multiplied by the contract multiplier and number of contracts, with any required currency conversion. A short position has the opposite sign. Deposited margin is not the maximum amount at risk. A small percentage movement in the underlying can create a large percentage change relative to funds deposited, and losses can exceed the initial deposit under adverse conditions.
2.2 Margin changes, cash calls and liquidation
Funding rules can include initial requirements, ongoing mark-to-market and additional calls; some products use different or fully funded structures. Exchange requirements and broker conditions must be checked, not assumed. Margin may increase during volatile conditions. Insufficient cash can lead to forced closure at an unfavourable price. A planned exit or stop instruction does not guarantee the execution price, especially around gaps or thin liquidity.
Step-by-step method
- Calculate notional exposure using the actual multiplier.
- Stress price changes and translate losses into cash-funding needs.
- Read margin, call, closure and settlement rules before entry.
Teaching assumptions: notional exposure is PKR100,000 and deposited funds PKR10,000. A5% adverse linear price move produces a PKR5,000 loss before costs, half the deposit. The assumed10% deposit is not a PMEX margin schedule or a guaranteed liquidation threshold.
Understand the commodity and currency drivers
3.1 Gold, silver and crude oil are different risks
Gold can respond to global interest rates, currency expectations, investment demand and stress conditions, but it can also fall sharply. Silver combines investment and industrial influences. Crude oil is sensitive to supply, demand, inventories and geopolitical disruptions. These broad drivers do not create a reliable universal trading rule. Correlations can change precisely when investors expect diversification to help. Verify the relevant contract rather than transferring assumptions from another international product.
3.2 Quote currency and local purchasing power
A local investor must examine how foreign-currency reference prices, PKR conversion and the contract’s settlement convention interact. Currency depreciation does not guarantee a positive local outcome if the underlying commodity falls or contract costs rise. Physical ownership, a funded commodity product and a leveraged futures position can have materially different cash-flow and custody characteristics. The relevant comparison is the total economic exposure, not only the name of the asset.
Step-by-step method
- Identify the commodity’s demand and supply drivers.
- Trace reference price and currency conversion through the specification.
- Compare adverse joint commodity/currency scenarios.
An investor expects a weaker PKR to help a gold exposure, but the global reference price falls. The exercise calculates both effects under explicit assumptions and includes costs, rather than labelling gold a guaranteed safe haven.
Design a hedge from the underlying risk
4.1 Match quantity, timing and economic sensitivity
A hedge begins with an existing exposure, such as a business’s future input cost. Identify the amount, date, reference commodity and degree of price pass-through before choosing a futures position. A transport company’s share price is not equivalent to a fixed quantity of fuel. Its profits also depend on demand, financing, management and pricing power. Buying oil futures against transport shares can therefore add a new speculative exposure rather than neutralise a known risk.
4.2 Basis, rollover and imperfect offsets
Basis risk arises when the hedging contract and the exposure do not move together. Different grades, locations, currencies and dates create mismatches. Expiry can require closing or rolling the position, adding cost and liquidity risk. The hedge may improve the eventual economic outcome while creating immediate margin payments. Evaluate the combined exposure and the cash available to maintain it under stress, not the hedge leg alone.
Step-by-step method
- Define the existing exposure and its timing.
- Justify the hedge direction, quantity and contract match.
- Stress basis differences, rollover costs and interim cash calls.
A business plans a future commodity purchase. Rising prices may make a long hedge beneficial, but a price fall can cause margin losses before the cheaper physical purchase occurs. The funding plan must survive that timing mismatch.
Create operating controls and review results
5.1 Position, expiry and cash monitoring
A futures process needs clear limits on notional size, deposited cash, stress loss, expiry concentration and available funding. Check market liquidity and contract calendars, preserve orders and confirmations and reconcile daily cash movements. Use verified funding channels and understand who holds client money under the applicable arrangements. Do not promise that a commodity hedge can be left unattended like a simple long-term savings balance.
5.2 Combined performance and documented limits
Evaluate hedge results together with the original exposure, including trading costs, conversion, rollover and financing effects. A profitable hedge leg is not necessarily a successful overall strategy; the underlying exposure may have lost more. Likewise, a hedge loss can accompany a favourable underlying outcome. Keep the initial purpose, assumptions and review triggers so the evaluation does not become hindsight storytelling. Lack of a suitable contract or funding capacity can justify choosing no hedge.
Step-by-step method
- Document position limits, expiry actions and funding responsibilities.
- Reconcile contract positions and cash using official account records.
- Review combined outcomes against the original risk objective.
Prepare a hypothetical hedging plan without placing orders. State the actual specification needed, the exposure being hedged, stress cash calls and reasons to reject the plan. No live commodity quote or invented historical performance is required.
A modest notional loss can consume much of a deposit
| Measure | Value |
|---|---|
| Illustrative funds deposited | 10,000 PKR |
| Funds after assumed5% adverse notional move | 5,000 PKR |
Reference table
| Field | Why it matters |
|---|---|
| Unit and multiplier | Convert price movement into cash gain/loss |
| Quote and settlement currency | Identify conversion exposure |
| Funding and margin rules | Plan cash calls and closure risk |
| Expiry and settlement method | Avoid unintended delivery or rollover |
| Liquidity and transaction costs | Assess executable entry and exit |
Glossary of key terms
- Basis risk
- Risk that the hedge and underlying exposure change by different amounts.
- Contract multiplier
- The factor converting a quoted price change into money for a contract.
- Expiry
- The date or process at which a contract reaches its specified end.
- Margin
- Funds required under a contract’s risk and funding arrangements; not automatically maximum loss.
- Mark-to-market
- Revaluation of positions and the associated accounting or cash adjustments under the rules.
- Notional exposure
- The economic contract amount controlled before considering deposited margin.
- Rollover
- Closing or replacing an expiring exposure with a later contract.
Frequently asked questions
Does a gold future guarantee protection from PKR depreciation?
No. Commodity movements, currency conversion, leverage, funding and costs can offset the intended benefit.
Is initial margin the maximum possible loss?
No. Adverse changes and obligations can exceed the initial deposit.
Can I assume the same margin for all PMEX products?
No. Read the current product and broker requirements; funding structures differ.
Is oil a perfect hedge for transport shares?
No. Shares reflect many business risks, and their sensitivity is not a fixed physical fuel exposure.
Common pitfalls
| Common mistake | A better approach |
|---|---|
| Treating futures as physical ownership | Read the rights and settlement method. |
| Sizing from the cash deposit alone | Calculate notional and stress funding needs. |
| Ignoring expiry and roll costs | Plan contract-end actions and liquidity. |
| Judging only the hedge profit | Evaluate the hedge and underlying exposure together. |
Your learner task
Design a hypothetical commodity-exposure worksheet: current specification checklist, notional calculation, funding stress, commodity/currency scenarios, hedge mismatch and expiry plan. Identify every input requiring verification and explain when no futures position would be appropriate.
Sources & verification
Use the linked documents to check the factual and regulatory context. Source dates and limitations are stated where relevant. Educational examples and analytical frameworks are not personalised recommendations.
- PMEX · Investor education ↗
Official futures education and links to guides; current product terms must be retrieved separately.
- PMEX · Futures trading guide ↗
Margin and futures mechanics; historical guide is not a current margin or product-availability schedule.
- PMEX · Customer guidelines ↗
Customer due diligence and risk-document review.
Editorial review: 22 October 2026