Futures contract
Also called: futures, index futures, stock futures
An agreement to buy or sell an index or share at a fixed price on a fixed date, with the profit or loss settled every day.
With a future you agree today on the price of a deal that completes on expiry day. You do not pay the full value. You post a margin, typically 10 to 15 percent of the contract, and the exchange settles gains and losses in cash every evening. Index futures settle in cash; stock futures held to expiry end in delivery of the shares.
The margin makes futures leveraged. A small move in the index is a large move on the money you put up, in both directions, and a sharp move can cost more than your whole margin.
Example
You buy one Nifty future at 25,000. With a lot size of 65 the contract is worth about 16.25 lakh rupees, against a margin of about 2 lakh. If the Nifty rises 300 points you gain 19,500 rupees. If it falls 300 points you lose the same.
Watch out
SEBI found that about nine in ten individual traders in futures and options lost money over three recent years. Futures are tools for hedging and professional trading, not a faster way to invest.
Learn it properly in
Chapter 1.1: Futures and options in India: how F&O actually works, and why nine in ten retail traders lose