Explainer| Egypt enters the derivatives era, but what are they?

The Egyptian Exchange is set to launch its first financial derivatives this March, a long-awaited move intended to modernize the market and provide a hedge against volatility. Starting in March, investors on the Egyptian Exchange (EGX) will begin trading a new class of instrument: financial derivatives.

Rather than standalone assets, these contracts “derive” their value from underlying assets, acting as a market mirror that reflects expectations of future price changes in stocks and bonds.

Why is the introduction of derivatives considered a necessity?

Experts argue that derivatives are essential for providing tools to hedge against future risks.  Ehab Rashad, head of Mubasher Capital Investments, listed several advantages of futures contracts, chief among them that they offer an opportunity to profit when the market falls. That feature is one reason experts see derivatives as a potential driver for attracting new investors into the securities market.

While many regional markets have already adopted these instruments, Egyptian officials hope their introduction will reverse a decade-long decline in market depth. The ratio of market capitalization to GDP has fallen significantly, dropping from 22.6% in 2017 to just 16.5% recently.

Rashad, notes to Al Manassa, that derivatives are not merely an “extra” product; they are a fundamental tool for attracting institutional investors and hedge funds that previously avoided the Egyptian market due to a lack of risk management infrastructure.

Can these tools revive foreign investment?

A primary driver for this launch is the need to attract hard currency. Non-Arab foreign participation in the EGX plummeted to just 3.4% during the height of the 2023 dollar crisis. While it recovered to 13% in 2025, it remains well below historical levels.

Egypt is also playing catch-up with its neighbors. The Dubai and Abu Dhabi exchanges, as well as the Dubai Gold and Commodities Exchange, established derivative markets years ago, giving them a competitive edge in attracting international capital through futures on individual stocks and commodities like gold.

Why is the exchange starting with “futures” and targeting Gen Z?

The exchange is beginning with the simplest form of derivatives: futures contracts on the EGX30 index. Under these contracts, an investor worried about a market dip can open a “short position.” If the index drops, the gains from the contract can offset the losses in their stock portfolio.

Mohamed Maher, head of the Egyptian Securities Association, explained that the rollout will be gradual, moving eventually to futures on the 10 largest individual stocks. Maher is specifically betting on “Gen Z”(those born between 1997 and 2012) to drive this growth.

This demographic accounted for a significant portion of the 280,000 new investors who joined the exchange last year, drawn by FinTech tools and the ability to trade with limited financial resources.

What are the dangers of “leverage” for the individual investor?

Despite the benefits for market liquidity, derivatives carry a “double-edged sword” known as leverage risk. Investors are not required to pay the full value of a contract (e.g., 50,000 EGP) but only a “mandatory margin,” likely around 10% (5,000 EGP). 

While this allows for multiplied profits, it can also wipe out an investor's entire capital if the market moves against them. “Leverage risk can expose an investor to losses far exceeding their capital if not managed professionally,” Rashad warned, emphasizing the urgent need for investor awareness and specialized training for brokerage teams.