A futures contract is an agreement to buy or sell an asset at a fixed price on a future date. In India, exchanges offer futures on indices like Nifty and Bank Nifty and on selected stocks, as well as commodity and currency futures on recognised exchanges.
Futures are used for hedging and for trading. Because you only deposit a margin, they are leveraged — and that is what makes them both attractive and dangerous.
Key features
- Underlying: the index, stock, commodity or currency pair.
- Lot size: the fixed quantity per contract, set by the exchange and revised periodically.
- Expiry: contracts expire on a set day each month (per exchange schedules).
- Contract value: futures price × lot size.
- Margin: a percentage of contract value deposited with the broker (initial margin = SPAN + exposure margin).
How leverage works
Suppose a contract's value is ₹16 lakh and the margin required is about ₹2 lakh. A 1% move in the underlying changes the contract value by ₹16,000 — 8% of your margin. A 5% move is ₹80,000, or 40% of the margin.
This is why futures losses can grow very fast. Use the futures P&L calculator and the margin calculator to see real numbers before trading.
Daily mark-to-market (MTM)
Futures positions are settled daily. If your position loses money today, the loss is debited from your account at the end of the day; if it gains, the profit is credited. If your margin falls below the required level, you must add money or the broker may close the position.
Long and short futures
- Long futures: profit if the price rises.
- Short futures: profit if the price falls — a common way to hedge a portfolio.
Rollovers
Before expiry, traders who want to keep a position close the current month and open the next month's contract. The price difference between months reflects carrying costs.
Hedging with futures
Investors with a diversified portfolio can sell index futures to protect against a short-term fall. The size of the hedge depends on portfolio value and beta. Hedging reduces risk but also limits gains while in place.
Costs
- Brokerage, exchange charges, GST, stamp duty and STT. From 1 April 2026, STT on futures sales is 0.05% — see the STT calculator.
- Slippage in fast markets.
- Interest cost if you use borrowed funds for margin.
Risk management for futures
- Size by stop distance in money terms, not by margin available. If one lot's stop risk exceeds your per-trade risk, skip or wait for a tighter, valid setup (position sizing explained).
- Always use stop-loss orders.
- Be careful holding positions overnight and through major events — gaps can exceed stops.
- Never use all available margin.
Futures vs options
| Futures | Options (buying) | |
|---|---|---|
| Obligation | Yes, both sides | Buyer has the right only |
| Loss | Unlimited in theory | Limited to premium |
| Time decay | No | Yes |
| Capital | Margin | Premium |
| Behaviour | Moves ~1:1 with underlying | Depends on delta |
Key takeaways
- Futures are leveraged agreements to buy or sell at a fixed price on a future date.
- Margin is small relative to contract value, so losses can be large and fast.
- Positions are marked to market daily; margin shortfalls must be covered.
- Size by stop risk, use stops and respect overnight and event risk.
Frequently asked questions
Is futures trading good for beginners?
Futures are leveraged and fast-moving. Beginners should master charting and risk management first and start with very small exposure.
What happens if I hold futures until expiry?
Index futures are cash-settled at expiry. Stock futures in India are physically settled, so check your broker's rules well before expiry.
How is futures profit taxed?
F&O income is generally treated as non-speculative business income. See tax on intraday and F&O income.
Can I calculate futures profit and loss in advance?
Yes — use the futures P&L calculator.
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