Futures

Understand long and short futures, contract sizes, profits and losses, daily settlement, rollover and expiry in India.

A futures contract is a standardised agreement to take a price exposure to an underlying asset, an index or some other reference, under the contract terms an exchange has set.

Two things follow from “standardised”. It is written down in advance rather than negotiated between two people, and it is centrally cleared: the exchange’s clearing corporation stands between the buyer and the seller, so the two do not carry each other’s credit risk.

This is an educational overview, not financial, tax or legal advice. Futures carry a high risk of loss, and the examples below are hypothetical illustrations, not current contract specifications. Verify terms with your broker and check with a qualified professional before acting.

The general idea is in derivatives. The other contract type is in options.

What a futures contract does and does not do

The obligation exists from the moment the position is opened, not only on expiry day. A futures position is binding as soon as you take it, and it stays binding until you close it or the contract settles. Expiry is where that obligation is finally discharged, not where it begins.

You do not necessarily buy or sell the underlying. Futures may settle through cash payments or through physical delivery, depending on the contract. An index, for example, cannot be delivered, so index futures settle in cash. A stock future can create a real obligation to hand over shares.

You do not have to wait for expiry to get out. An open position can usually be closed before expiry by entering an offsetting transaction in the same contract, subject to market liquidity and trading rules. This is covered in full a little further down.

There is no option-style upfront premium. Futures require applicable margin instead, which is collateral supporting the position rather than a fee you pay to hold it.

Anatomy of a contract

Reading any exchange’s specification sheet takes about two minutes, and every futures contract has the same parts.

Contract size and lot size must be read according to the product. For stock futures, one market lot is a specified number of shares. For index futures, a contract multiplier sets the notional exposure, because an index is not a quantity of anything you can hold.

A hypothetical stock futures example

Take a stock priced at ₹2,000 with a lot size of 1,500 shares, and a hypothetical initial margin of 10%.

• One contract covers 1,500 shares.
• Notional exposure: ₹2,000 × 1,500 = ₹30,00,000
• Hypothetical initial margin: ₹3,00,000
• Three contracts represent exposure to 4,500 shares, or roughly ₹90,00,000 of notional at that price.

These numbers are hypothetical and are not current NSE contract specifications. Lot sizes and margin requirements are set by the exchange and change; read the live specification sheet rather than this example.

One distinction worth holding on to. The ₹30,00,000 is notional exposure, not a purchase price. Margin of ₹3,00,000 is collateral held against that exposure. It is not what you pay to buy the underlying, and it is not the most you can lose.

Long and short futures

• Long futures: the trader benefits from a rise in the futures price and loses when it falls, before costs.
• Short futures: the trader benefits from a fall in the futures price and loses when it rises, before costs.

A short futures position is not the same as a conventional short sale in the cash market. You are not borrowing shares and selling them in the hope of buying them back cheaper. You are taking the opposite side of a futures contract, and the clearing arrangement handles the rest.

That said, long and short are not identical in every respect. Delivery obligations, price limits, position limits and risk controls can treat the two directions differently, and your broker may apply its own limits to either.

How a futures position makes or loses money

This is the part worth understanding before anything operational, because futures profit and loss is a simple multiplication.

Take a hypothetical index futures contract:

• Entry price: 25,000
• Contract multiplier: 60
• Notional exposure: 25,000 × 60 = ₹15,00,000
• Hypothetical initial margin: ₹1,50,000

For a long position, profit and loss is the change in price multiplied by the multiplier:

For a short position the outcomes reverse. A fall to 24,750 produces a ₹15,000 profit, and a rise to 25,250 produces a ₹15,000 loss.

Notice what that means for the money at stake. A move of 250 points is 1% of the 25,000 entry price, and it produces a ₹15,000 swing, which is 10% of the ₹1,50,000 margin. That ratio is leverage, and it does not depend on the direction you guessed.

Read the table with these qualifications:

• These are gross figures, before brokerage, exchange fees, statutory levies and GST.
• Margin is not the maximum possible loss.
• Actual margin requirements change with the product and with market conditions.
• Additional margin can be demanded before the initial margin is fully lost, which is what forces people to close at a bad moment.
• Final realised profit depends on your actual exit or settlement price, not on the illustrative move.

Daily settlement: mark to market

A futures contract is settled against the market every single trading day. This is called mark-to-market, or MTM, and it is the biggest structural difference from owning the underlying.

For an eligible exchange-traded futures contract, the clearing system determines a daily settlement price, gains and losses are computed under the applicable settlement rules, and the resulting cash obligation is settled on the clearing schedule. The day a trade is executed is not generally the day the money moves.

A simple example. A position representing 60 units has the daily settlement price move against it by 100 points:

• MTM loss = 100 × 60 = ₹6,000

That loss hits the trader’s funds under the applicable settlement timetable. It is not a rounding error to be discovered at expiry; it is money that moves while you hold the position, which is exactly why futures require margin rather than the full notional.

Three things get confused here, so it is worth separating them:

• Initial margin is collateral supporting the position. It is not a fee and not a cap on losses.
• Variation, or MTM settlement, is the daily recognition and payment or receipt of gains and losses under clearing rules.
• Additional margin arises from changing market conditions, position concentration or other applicable risk parameters, and can be demanded on top of the initial requirement.

Closing a futures position

You do not have to hold to expiry.

• A long futures position is closed by selling the same contract.
• A short futures position is closed by buying the same contract.

The two offsetting trades are netted, and the position is closed under the applicable clearing arrangements. This is different from allowing a physically settled contract to run on to delivery.

Two cautions. Closing requires a counterparty at a price you accept, so attempting to close is not a guarantee of execution at your chosen level, particularly in a fast market or a thin one. And your broker may impose its own earlier cutoff for reducing or squaring off intraday positions. A broker’s risk management system is not the same thing as the exchange’s trading hours, and it can be stricter.

Rolling a position

A futures contract expires, and a new one is listed after it. Holding a view for longer than a single contract therefore means rolling: closing the expiring position and opening a position in a later expiry.

The most common misunderstanding here is that rolling costs you the price difference between the two contracts. It does not.

Take a hypothetical pair:

That ₹10 is the calendar spread, the price difference between two futures maturities. It reflects factors such as financing, dividends, storage costs and market supply and demand.

Two different convergences are easy to confuse here. As a futures contract approaches expiry, its price generally converges towards the underlying spot or reference settlement price. That is futures-to-spot convergence. The calendar spread is a different thing: the price difference between the expiring contract and the next-month contract does not necessarily converge to zero when the near contract expires, because the next-month contract still has time remaining and may retain a cost-of-carry component.

So rolling into a higher-priced contract is not automatically an immediate realised loss, although the spread affects the economics of maintaining exposure over time.

Opening a long position in the later contract at ₹1,010 is not, by itself, a ₹10 realised loss. Your first contract and your second contract are separate positions with separate P&L. The economic benefit or cost of the roll depends on what the price does next, how the two maturities converge, the carrying costs, and the transaction costs of both legs. A trader who rolls repeatedly is not automatically paying the spread every month.

What does accumulate with each roll is transaction cost: brokerage and exchange charges on both the closing and the opening trade, statutory levies, the bid-ask spread you cross, and slippage. On a small position those costs are a meaningful share of the result, which is why position size and holding period matter.

Continuous futures charts

You will see symbols in charting software that look like an index name with no month on it, described as a continuous contract. These are generally a data and charting construct that stitches together successive contract maturities so a longer history can be drawn as one line.

A continuous contract is not necessarily something you can trade. Orders are placed in actual listed contracts with a specific expiry, and which contract you are in matters enormously for the result. Always check the expiry on the instrument you are actually trading.

Why a futures price is not the spot price

A futures price is not simply today’s price of the underlying. It reflects the cost of carrying that underlying to the expiry date:

• Financing costs, the interest on the money tied up.
• Expected dividends or other income the holder of the underlying would receive, which reduce what a buyer is effectively paying.
• Storage and insurance costs for physical commodities.
• Time to expiry.

For a commodity that also carries inventory and convenience effects. The point for a beginner is that a futures price need not equal the spot price before expiry, and that the gap between them is informative rather than an error.

Note the difference from options. Implied volatility does not enter futures pricing in the way it enters an option pricing model. Futures prices are shaped by carry and the market’s view of the underlying. Volatility can still influence them indirectly, through risk appetite and the spread between bid and ask, but it is not a direct input.

The theoretical futures price

There is a standard formula for the price a futures contract would have if the market were frictionless and nobody could earn an arbitrage profit. For an equity or index future, using continuous compounding:

F = S × e(r − q)T

Read it as: the futures price is the spot price grown by the financing cost over the period, less the value of the dividends you would have collected by holding the underlying instead.

This is a theoretical model, not a prediction. It assumes a continuous dividend yield, continuous compounding and an idealised no-arbitrage market. A real contract will not trade exactly at this number.

A worked example

Hypothetical inputs, not current market values:

F = 25,000 × e(0.06 − 0.01)(30/365)
= 25,000 × e0.0041096
= 25,000 × 1.0041180
= 25,102.95

The futures price is higher than spot here because the assumed financing cost of 6% exceeds the expected dividend yield of 1% over the period. If the dividend yield were higher than the interest rate, the formula would produce a futures price below spot.

Premium and discount

• Futures premium: the futures price is above the spot price.
• Futures discount: the futures price is below the spot price.

These terms describe only the relationship between the two prices. A premium does not mean traders are bullish, and a discount does not mean they are bearish. The gap reflects financing, expected dividends, time to expiry, supply and demand, and the position traders actually take, not a shared view about direction.

Convergence at expiry

As a standard futures contract approaches expiry, its price generally converges towards the applicable spot or reference settlement price. This is the mechanism behind the rollover discussion earlier in this chapter.

That is not the same as the calendar spread narrowing to zero. The price difference between the expiring contract and the next-month contract does not necessarily converge when the near contract expires, because the next-month contract still has time remaining and can retain a carrying-cost component.

Where the formula stops working

The model above suits an equity index with a continuous dividend yield. Real futures prices differ from it for several reasons:

• Expected dividends and, importantly, their timing. The continuous-yield assumption smooths over discrete payment dates.
• Financing and borrowing conditions, which are not perfectly smooth or constant.
• Transaction costs, taxes and market frictions.
• Supply and demand in the contract itself.
• Short-selling constraints and limits on arbitrage, which can stop the adjustment toward the theoretical price from happening promptly.

For an individual share with known discrete dividends, a present-value approach is usually more appropriate:

F = (S − PV(D)) × erT

Here PV(D) is the present value of the expected dividends before expiry.

Do not carry the continuous-yield model across to other products unchanged. Commodity futures also depend on storage costs, insurance, convenience yield and delivery conditions, which is covered in commodities. Currency futures reflect interest-rate differentials and other market factors, covered in the forex market.

The expiry calendar

There is no single futures expiry day. Effective 1 September 2025, following an exchange circular, NSE moved its equity derivatives to Tuesday and BSE moved to Thursday. Before that date the days were different, and contracts that expired on or before 31 August 2025 were unaffected.

One correction worth making explicitly, because it is widely repeated wrongly: NSE index futures do not have weekly expiries. NSE’s published specifications set a three consecutive month trading cycle for index futures, being near-month, mid-month and far-month. The weekly expiries belong to Nifty 50 index options, which the same specification describes as having four weekly expiration contracts excluding the monthly ones, alongside three monthly contracts. Other index options carry three monthly contracts.

Two further qualifications. A schedule in a published specification is not a guarantee that every listed series is currently active, so confirm the contract you intend to trade. And trading holidays can move an expiry, but the rule is not uniform: NSE states that where the relevant Tuesday is a trading holiday, expiry moves to the previous trading day, and currency contracts have their own product-specific last-trading-day cut-offs, such as the 12:30 pm time above.

Expiry conventions have changed more than once and will change again. The exchange specification wins over this page. This table was checked on 14 October 2026 against NSE’s published contract specifications and circular NSE/FAOP/68747.

Trading hours

NSE’s equity derivatives segment closes at 3:40 PM under its published market timings, following changes made in 2026. That figure applies to NSE equity derivatives under the current schedule. Do not apply it universally: BSE, the currency segment and the commodity exchanges run their own timings, which are set out in stock exchanges.

Two things to keep separate. The exchange’s close is the outer boundary, and a broker’s RMS square-off deadline can be earlier. And on expiry there may be product-specific cut-offs within the session, so the normal daily close is not always the time a contract’s last trading actually ends.

An extra few minutes of exchange time also does not guarantee your exit order fills.

Expiry and final settlement

If a position is still open at expiry, the exchange and clearing corporation rules determine what happens.

Index futures settle in cash, because the index itself is not deliverable. The final profit or loss is worked out under the contract’s final settlement rules.

Stock futures can create a real delivery obligation:

Margin is not a substitute for delivery. Collateral held as margin does not discharge a securities delivery obligation, and a cash debit or credit does not automatically extinguish one. If there are insufficient securities or funds, the consequences can include penalties, an auction or buy-in process, and close-out under the applicable clearing rules, and the precise treatment must be checked against current clearing-corporation procedures. Multiple eligible positions may be netted under the applicable rules.

A broker will generally try to square off positions before expiry, but it is not necessarily obligated or able to execute that square-off, and clients generally cannot participate directly in auction sessions. That is why expiry is a date to be square before rather than to watch arrive.

Commodity futures may be cash settled or physically delivered according to the contract, and delivery carries its own tender and delivery period rules. See commodities.

NSE’s listed INR currency futures are cash settled in Indian rupees under current specifications, with the settlement price derived from the relevant reference rate. See the forex market.

Hedging

The instrument was built for this, and it is where the mutuality of the obligation earns its keep. A hedge is not about making money; it is about cancelling out the risk you already carry.

A commodity hedge

A producer or holder of physical crude oil is concerned about falling prices, because a fall reduces the value of the oil it owns.

An eligible short crude oil futures position can offset some of that loss. The physical holding loses value while the futures gain, and the two move against each other.

The offset is imperfect, and it is important not to sell it as a lock. Basis risk is the gap between the price of the physical and the futures contract you hedged with. Contract matching, the timing of the hedge against the sale, and transaction costs all leave gaps too. A hedge reduces an exposure; it does not eliminate it.

A currency hedge, and the direction that trips people up

An Indian exporter expecting USD receivables wants to convert dollars into rupees later. The risk is that USDINR falls, because a stronger rupee means those dollars convert into fewer rupees.

Worked example, hypothetical:

• The exporter expects $10,000.
• Today USDINR is ₹85, so the receivables are worth ₹8,50,000.
• Later USDINR is ₹83, so they are worth ₹8,30,000.
• Reduction in rupee value: ₹20,000

The appropriate hedge, where eligible, is to SELL USDINR futures. A short USDINR position gains as USDINR falls, which offsets the reduction in the rupee value of the receivable.

Buying USDINR futures in this situation would have made things worse, adding to the adverse move rather than offsetting it. Getting this direction backwards is the single most common error in this example, so it is worth being unambiguous: an exporter hedging falling USDINR needs a short position.

As with any hedge, the offset is not exact. Contract sizing, basis, timing and transaction costs all leave a gap. Indian currency derivatives activity is subject to applicable RBI and FEMA rules, including eligibility and position limits, so a hedge is a regulated activity and not an unrestricted speculative trade. The regulatory detail is in the forex market.

Risks worth naming

• Leverage and margin shortfalls. The arithmetic in the P&L section is the reason most retail futures losses happen.
• Daily MTM funding. Losses are crystallised daily, so a position can need funds before the idea has had time to work.
• Overnight gaps. A position can open past your stop and past your margin on the opening print, particularly in an index with overnight news.
• Liquidity and slippage. The popular index futures trade heavily; obscure contracts may not, and you may not get the price you see.
• Expiry and delivery obligations, particularly on physically settled stock futures.
• Basis risk when hedging, as described above.
• Rollover effects and the transaction costs of each roll.
• Broker square-off limits and the possibility that an exit order does not fill.

Stop-loss orders cannot guarantee an exit at the requested price. They become a market order when triggered, and in a gap or a thin market the fill can be materially worse. It is also not safe to assume that volatility or open interest always builds toward expiry; patterns differ by contract and by market conditions.

Before you trade a futures contract, know what happens to your position on expiry day, what the margin call does if you are wrong, and what the total cost per trade is. Costs are in trading costs.

Next: options.