Futures Contract: Meaning, Definition & Indian Stock Market Examples

Binding agreement to buy/sell an asset at a fixed price on a future date.

Disclaimer: This article is for educational purposes only and does not constitute SEBI-registered investment advice. Consult a SEBI-registered investment advisor before making investment decisions.

What is Futures Contract?

A futures contract is a standardised agreement to buy or sell an underlying asset (stock, index, commodity, currency) at a predetermined price on a specified future date. In India, equity futures are available on stocks and indices (Nifty, Bank Nifty) on NSE. Futures require margin deposit and are marked-to-market daily.

Futures Contract — Indian Stock Market Example

Nifty 50 futures are the most traded equity derivatives contract in the world by volume. A 1-lot Nifty futures contract = 50 units of Nifty 50. If Nifty is at 22,000, one contract value is ₹11 lakh; margin required ~₹1.1 lakh (10%). Expiry is last Thursday of each month (near, mid, far month contracts).

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Frequently Asked Questions about Futures Contract

What is the difference between futures and options?

Futures: both buyer and seller are obligated to transact on expiry. Profit/loss is linear and unlimited in both directions. Options: buyer has the RIGHT (not obligation) to transact. Buyer's maximum loss is premium paid; profits are unlimited. Options allow defined-risk strategies that futures do not.

What happens on futures expiry in India?

NSE F&O contracts expire on the last Thursday of each month. On expiry, open futures positions are settled at the exchange-determined settlement price (based on last 30-minute cash market average). Most traders roll their positions to the next month before expiry or let them expire/settle. Expiry day sees elevated volatility as positions are closed.

Related Terms

Call Option

Right (not obligation) to buy an asset at a fixed strike price before expiry.

Put Option

Right (not obligation) to sell an asset at a fixed strike price before expiry.

Short Selling

Selling borrowed shares expecting price to fall — profit from price decline.

Derivative

Financial instrument whose value derives from an underlying asset — futures, options, swaps.

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