The CAC 40® index futures contract, also known as CAC 40® Futures, stands out for its flexibility, leverage,, and central role in risk management and strategy for both professional and individual traders. Used by both institutional investors to hedge their portfolios and active traders looking to take advantage of short-term movements, the CAC 40® index Future is a preferred instrument for investing in the stock market on the derivatives market.
But how exactly does this financial product work? Why use it instead of simply investing in stocks ? At are the most common strategies for maximizing your profits while controlling your risk? This article deciphers everything you need to know about CAC 40® futures contracts, detailing their usefulness, their mechanism, and best practices for using them effectively.
Also find at the end of this article all the explanations from financial market experts on CAC 40® futures contracts in the replay of the webinar organized by Café de la Bourse in partnership with Euronext entitled “How to optimize your investments with CAC 40 futures contracts?”
What is the CAC 40 Index Future?
A Futures contract is a standardized agreement to buy or sell a defined quantity of an underlying asset at a pre-agreed price, with a specified maturity.
The CAC 40 Future is based on the CAC 40 index, which includes the 40 most liquid companies listed on Euronext Paris, weighted according to their market capitalization.. It is the most traded index derivative product on the Paris stock exchange, popular with both institutional investors and active traders.
CAC 40 futures contracts are tradable on Euronext Paris from 8 a.m. to 10 p.m., offering a wide trading window. Each contract expires on the third Friday of the expiry month, with trading closing at 4 p.m. that day.
To take a position in this market, your financial intermediary will require a security deposit (or initial margin) corresponding to a percentage of the contract value. Each day, your unrealized gains or losses will be adjusted via a margin call mechanism, crediting or debiting your account based on market fluctuations.
Why use the CAC 40 Future?
Futures contracts have several advantages that make them a preferred choice over other stock market and derivative products such as CFDs, options,, ETFs
First of all, the liquidity of Futures is particularly high, especially on major indices such as the CAC 40 Future. This high liquidity guarantees a reduced bid/ask spread, facilitating the rapid execution of stock market orders, even in large quantities. In addition, unlike over-the-counter CFDs (OTC) products, Futures are traded on a centralized market (such as Euronext Paris), offering total price transparency.
Another major advantage is access to the order book. This tool allows active traders to analyze market depth, assess liquidity levels, and execute scalping strategies by taking advantage of short-term fluctuations with great responsiveness.
Futures contracts were originally used primarily to hedge a portfolio against market risks by setting a buy or sell price today at a future date. However, many retail investors and specialized funds now use them as a trading tool, allowing them to take long or short positions with significant leverage.
Unlike options, which carry a premium and whose value depends on the time remaining until expiration, futures offer direct exposure to market performance, with no time-depreciation component. In addition, their standardized structure simplifies position management, particularly for day trading, swing trading, or arbitrage strategies.
Finally, futures trading fees are generally more competitive than other derivatives, especially for active traders. Their daily mark-to-market mechanism also helps avoid counterparty risk, as each transaction is guaranteed by a clearing house, thus ensuring market security.
In summary, Futures contracts are an essential instrument for those seeking liquidity, transparency d flexibility, whether for hedging or precise speculation on the financial markets.
How does the CAC 40 Future work?
The value of a CAC 40 futures contract is directly linked to the performance of the index. Each index point is equivalent to 10 euros, which is called the stock index multiplier.
Concretely, this means that for each point gained or lost on the CAC 40, your gain or loss will be 10 euros per contract held.
Let’s take an example. Imagine that you buy a CAC 40 Futures contract when the index is at 8,050 points:
If the index rises to 8,070 points, you win 20 points, and with a multiplier of 10, your gain is €200 (20 points × €10);
Conversely, if the index falls to 8,030 points, your loss will also be €200.
The leverage of the CAC 40 Future therefore allows you to maximize gains, but also amplifies losses, which makes it a tool to be handled with caution.
The mechanism of futures contracts
Futures contracts are traded on an organized market, such as Euronext Paris, for the CAC 40 Future. Their price depends largely on the price of the underlying index, adjusted by various factors such as interest rates or anticipated dividends. Liquidity, i.e., the ease of buying and selling, is ensured by the presence of a large number of traders, institutional investors, and market makers who continuously place buy and sell orders.
When a retail investor places a buy or sell order on their trading platform, it is immediately sent to their broker,o forwards it to the futures market. There, a matching is made between the trader’s order and an opposing order (a seller if it’s a buy, and vice versa). Once executed, the trade is recorded by the clearing house, which guarantees the transaction and ensures that each party respects its commitment.
Then, each day, the position is adjusted according to price movements. If the contract value increases, the trader’s account is credited with the difference; if it decreases, it is debited. This mechanism, called a margin call, ensures the solvency of positions until the contract is closed or expires.
The different deadlines available for taking a position
Futures contracts allow you to set a purchase or sale price in advance, with the option to choose a time horizon that suits your needs. Futures contracts come in a variety of maturities, from short-term to long-term.
In particular, monthly maturities (1, 2 a,, nd 3 months) are distinguished, as well as quarterly, half-yearly, and annual maturities. However, the most actively traded maturities remain the short-term ones, particularly monthly and quarterly contracts, which account for the majority of trading volumes.
These different maturities offer investors great flexibility, allowing them to adapt their trading or hedging strategies according to their objectives and investment horizon. It is, nevertheless, essential to note that an investor is never obliged to hold their contract until maturity, and they can close their position at any time by taking an opposing position on the market.
What are mini futures on the CAC 40 index?
To make the CAC 40 Futures contract even more accessible, Euronext also offers a mini-future on the CAC 40 index. This contract has a smaller nominal size than the standard contract, with an index point value set at €1 instead of €10. This feature allows investors to take a position with ten times less capital, while remaining exposed to market fluctuations.
If you buy a mini-future when the CAC 40 index is at 8,050 points, the nominal value of your position will be €8,050. Your margin deposit will be approximately 12% of this amount, or approximately €966. If the CAC 40 index rises by 10 points, you will make a profit of €10. Conversely, a decline of 10 points will result in an equivalent loss.
The CAC 40 mini future thus represents an interesting alternative for investors with more limited capital, wishing to reduce their exposure to risk while benefiting from the advantages of futures contracts.
What is the security deposit (initial margin) used for?
The margin deposit, or initial margin, is the amount an investor must pay to their broker to open a position on a futures contract. This capital serves as collateral to cover potential losses and ensures that the investor can withstand fluctuations in the stock market index.
In addition to this initial margin, a variation margin is recalculated daily, based on gains or losses related to the contract’s performance. If losses exceed a certain threshold, the broker may request additional funds to secure the position. This is known as “margin calls,” a situation where the investor must quickly add funds or risk having their position forcibly liquidated.
Margin deposits for CAC 40 futures vary depending on market conditions and broker requirements, but typically range between 10% and 12% of the total contract value. For example, for a futures contract valued at €80,500, the initial margin could be between €8,050 and €9,660. These amounts are adjusted regularly based on market volatility and clearing house policies.
What are the best trading strategies for the CAC 40 Futures?
The best CAC 40 Future trading strategies vary depending on the investor’s profile, investment horizon, and risk tolerance.
Scalpers seek out very short-term opportunities, taking advantage of small price movements and high market liquidity. With access to the order book, they execute multiple trades in seconds or minutes toaccumulate small, repeated profits.
Day traders, on the other hand, seek to exploit intraday movements, using tools like technical analysis, support and resistance, and monitoring economic announcements that influence the market. Their goal is to close all their positions before the end of the day to avoid the risks associated with price discrepancies the next day.
Swing traders, on the other hand, take a more measured approach, holding their positions for several days or weeks. They analyze market trends, use technical indicators like moving averages or the RSI, and sometimes incorporate macroeconomic factors to anticipate movements in the CAC 40.
Finally, hedgers (or hedge investors) use futures contracts to protect a stock portfolio against volatility. For example, an investor owning several CAC 40 stocks might sell a futures contract to hedge against a decline in the index.
What are the risks of trading CAC 40 Futures?
Trading CAC 40 Futures contracts carries high risks, making them an instrument primarily intended for professional traders and experienced investors. Unlike stocks, where the maximum loss is limited to the initial investment, futures expose investors to potentially unlimited risk. Leverage allows investors to control a position much larger than their invested capital, but it also amplifies losses in the event of adverse market movements.
Additionally, margin calls can force a trader to quickly add funds to maintain their position or face forced liquidation by the broker. This dynamic can lead to losses far over the initial investment, particularly during periods of high volatility or market shocks.
This is why individual investors must adopt rigorous risk management, systematically using stop-losses to limit potential losses and monitoring their available margin levels. Money management and a good understanding of how futures work are essential to avoid excessive loss situations. In summary, the CAC 40 Future is a powerful tool, but it must be handled with caution and discipline.
