Futures contract is a standardized agreement to buy or sell an asset at a predetermined price at a specified future date. Unlike options where only the seller is obligated, in futures BOTH buyer and seller must fulfill the contract. Futures are traded on exchanges and used for hedging, speculation, and price discovery in commodities, indices, currencies, and interest rates.
- Obligation to buy/sell at future date
- Both parties must fulfill the contract
- High leverage through margin trading
How Futures Contracts Work
Futures lock in prices for future delivery:
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%
Quick Reference: Futures vs Options
| Feature | Futures | Options |
|---|---|---|
| Obligation | Both parties | Seller only |
| Premium | None (just margin) | Buyer pays premium |
| Max Loss | Unlimited | Limited (buyer) |
| Leverage | Very high | High |
| Time Decay | None | Yes |
Example: Index Futures Trade
Long Nifty Futures:
| Factor | Value |
|---|---|
| Entry Price | 22,000 |
| Contract Size | 50 |
| Contract Value | ₹11,00,000 |
| Margin Required | ₹1,00,000 |
| Target | 22,300 |
| Stop Loss | 21,850 |
| Risk/Reward | 1:2 |
Futures contracts obligate both parties to buy or sell at a future price. Unlike options, there’s no premium—just margin. High leverage means both profits and losses are amplified. Futures are popular for indices, commodities, and currencies.
Types of Futures
Index Futures
Nifty, Bank Nifty, S&P 500. Cash settled at expiration.
Stock Futures
Individual stock futures. Available on liquid stocks.
Commodity Futures
Gold, crude oil, natural gas. Physical or cash settled.
Currency Futures
USD/INR, EUR/USD. Cash settled.
Futures Terminology
Long Position
Bought futures, profit from price increase.
Short Position
Sold futures, profit from price decrease.
Mark to Market
Daily settlement of gains/losses to your account.
Rollover
Moving position to next month’s contract before expiry.
Trading Futures
Margin Requirements
- Initial Margin: To open position
- Maintenance Margin: Minimum to keep position
- Margin Call: Add funds if equity drops below maintenance
Settlement
- Daily MTM: Gains/losses settled daily
- Expiry: Final settlement or delivery
Common Mistakes
-
Underestimating leverage – Small moves cause big P/L. Can lose more than margin.
-
Ignoring rollover costs – Contango/backwardation affects returns.
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No stop loss – Unlimited loss potential requires strict risk management.
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Overtrading – Low margin requirements tempt over-leveraging.
How JournalPlus Tracks Futures
JournalPlus logs futures trades including entry, margin used, and leverage, helping you track performance and manage risk in derivatives trading.
