What is Futures Contract?
A futures contract obligates parties to transact the underlying at settlement per NSE rules, with daily mark-to-market and margin.
Formula
Futures Contract Example: Nifty Futures Contract: - Underlying: Nifty 50 Index - Contract Size: 50 units - Current Price: 22,000 - Contract Value: 22,000 × 50 = ₹11,00,000 Margin Required: ~₹1,00,000 (about 9%) If Nifty rises to 22,500: Profit = (22,500 - 22,000) × 50 = ₹25,000 Return on margin: 25% (for 2.3% index move) If Nifty falls to 21,500: Loss = (22,000 - 21,500) × 50 = ₹25,000 Loss on margin: 25%
Indian market context (NSE)
Reference levels: Nifty 50 at 24,300, Reliance Industries at ₹1,300, Bank Nifty futures at 55,000 (lot size 30). Examples below show how Futures Contract shows up on Indian index, equity, and futures books — update to live quotes in your journal.
Nifty 50 perspective
Nifty at 24,300: weekly/monthly option chains centre on round strikes (24,000 / 24,500). Futures Contract on ATM Nifty options shifts quickly into expiry — India VIX and event risk (RBI, budget) reprice premiums independent of spot.
Bank Nifty futures perspective
Bank Nifty futures at 55,000: hedging with options or trading futures contract on Bank Nifty weekly contracts — theta and gamma rise sharply into Thursday expiry; futures leg has no time decay but carries overnight gap risk.
How to validate
- Validate Futures Contract separately for index weeklies vs stock options.
- Stress-test with expiry-week and event-week subsets (RBI, budget, results).
- Confirm margin and tail-loss scenarios are logged for short premium books.
- Discard readings polluted by untagged discretionary adjustments.
How to track in TradeLyser
- Tag every leg: structure, DTE, moneyness, and whether Futures Contract was a primary driver.
- Log planned max loss ₹ on entry for short premium strategies.
- Weekly: list open short ITM/ATM legs before expiry with a written roll/close rule.
- Separate F&O account tags from cash equity for Futures Contract statistics.
Best practices
- Size Futures Contract trades with margin headroom for gaps and assignment.
- Prefer defined-risk structures when learning a new options concept.
- Roll or close based on written DTE rules, not convenience.
- Keep weekly index and monthly stock books in separate tags.
Common pitfalls
- Short premium without defined max loss while Futures Contract risk builds.
- Holding illiquid stock options into expiry without a plan.
- Blending index and stock gamma exposure in one tag.
- Ignoring margin spikes on gap opens.
How to use this in TradeLyser
Tag index future vs stock future. Log lot count and margin on each entry.
Related terms
Basis is the difference between the futures price and the spot (or fair) price of the same underlying — typically futures minus spot. Positive basis (futures above spot) is common in index futures when financing and dividend expectations embed in pricing.
Index futures are standardized NSE F&O contracts on benchmark indices (notably Nifty 50 and Nifty Bank) that cash-settle against official closing prices. They offer leveraged exposure to broad market direction with transparent lot sizes and deep liquidity relative to most stock futures.
Leverage means controlling larger notional than cash posted. F&O margin is a form of leverage with gap and margin-call risk.
Margin is the deposit brokers require to hold leveraged positions. It can rise sharply into expiry or on gap moves against you.
Open interest is the number of active derivative contracts not yet closed. Rising OI with rising price often suggests new long initiation; interpretations vary by context.
Rollover closes or shifts positions from near-expiry contracts to the next series, avoiding delivery or illiquid last days.
FAQ
What is a futures contract?
A futures contract is an agreement to buy or sell an asset at a set price on a future date. Unlike options, both buyer and seller are OBLIGATED to fulfill the contract at expiration.
What's the difference between futures and options?
Options give the right but not obligation. Futures create an obligation for both parties. Futures have no premium, just margin. Options have limited loss; futures have unlimited risk.
What are futures used for?
Hedging (farmers lock in crop prices), speculation (trading on price direction), and arbitrage. Common in commodities, currencies, and index trading.
How much money do you need to trade futures?
Futures require margin, typically 3-10% of contract value. A $100,000 contract might need $5,000 margin. High leverage means both amplified profits and losses.
What happens if futures expire?
At expiration, contracts are settled. Physical delivery (receive/deliver the actual commodity) or cash settlement (pay/receive price difference). Most traders close before expiration.
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