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What futures trading is, how it works, futures vs options — a complete guide for the Indian derivatives market.
Published by The Retail Trader · AUG 06, 2026 · Features
What futures trading is, how it works, futures vs options — a complete guide for the Indian derivatives market.
A future is a derivative contract in which the buyer and seller agree to exchange a specific quantity of an asset at a specific price on a specific date.
Simple definition: > Futures = Agreement to buy/sell something at a fixed price on a future date. Both parties must fulfill it — it is an obligation.
Real Example:
• Nifty at 20,000
• You BUY Nifty futures at 20,050 (August expiry)
• Lot size: 25
• Margin required: ~₹1,00,000
If Nifty goes to 20,300:
• Profit: (20,300 - 20,050) × 25 = ₹6,250
If Nifty goes to 19,800:
• Loss: (20,050 - 19,800) × 25 = ₹6,250
Keep these six points in mind:
• Obligation — Futures: MUST buy/sell, Options: RIGHT (not obligation)
• Premium — Futures: No premium (margin), Options: Pays a premium
• Max loss — Futures: Unlimited, Options: Premium paid (buyer)
• Settlement — Futures: Daily MTM, Options: At expiry
• Margin — Futures: ~10-15% of contract, Options: Premium only (buyer)
• Best for — Futures: Directional bets, Options: Hedging, limited risk
1. Index Futures:
• Underlying: Nifty 50, Bank Nifty, Nifty IT
• Lot size: Nifty = 25, Bank Nifty = 15
• Expiry: Last Tuesday of month
• Settlement: Cash
2. Stock Futures:
• Underlying: Individual stocks (Reliance, TCS, etc.)
• Lot size: Varies by stock
• Expiry: Last Tuesday of month
• Settlement: Physical delivery (rare for retail)
3. Currency Futures:
• Underlying: USD/INR, EUR/INR, GBP/INR
• Lot size: $1,000 (USD/INR)
• Expiry: Last working day
4. Commodity Futures:
• Underlying: Gold, Silver, Crude Oil, Natural Gas
• Exchange: MCX
• Lot size: Varies
In futures you don't pay the full price — only a margin (security deposit):
Keep these three points in mind:
• Nifty 20,000 — Contract Value: ₹5,00,000, Margin Required: ~₹1,00,000 (20%)
• Bank Nifty 45,000 — Contract Value: ₹6,75,000, Margin Required: ~₹1,35,000 (20%)
• Reliance ₹2,500 — Contract Value: ₹2,50,000, Margin Required: ~₹50,000 (20%)
P&L is settled every day:
• Profit → Money comes into your account
• Loss → Money goes out of your account
• Margin falls short → You get a margin call (add more money)
Expiry Settlement:
• Cash settled: Index futures (Nifty, Bank Nifty)
• Physical delivery: Stock futures (rare for retail)
• Expiry: Last Tuesday of month
Strategy 1: Directional (Long/Short):
• Bullish → Buy futures (long)
• Bearish → Sell futures (short)
• Simple, direct, leveraged bet on direction
Strategy 2: Hedging:
• To protect a portfolio
• Long portfolio → Sell Nifty futures
• Loss in portfolio offset by profit in futures
Strategy 3: Spread Trading:
• Buy near-month, sell far-month (calendar spread)
• Profit from time decay difference
• Lower risk than naked futures
Strategy 4: Arbitrage:
• Cash-futures arbitrage
• Exploit the price difference between spot and futures
• Low risk, requires fast execution
Keep these six points in mind:
• Leverage — Futures: ✅ 5-10x, Cash (Delivery): ❌ 1x
• Short selling — Futures: ✅ Easy, Cash (Delivery): ⚠️ Limited
• Cost — Futures: Margin + MTM, Cash (Delivery): Full price
• Holding — Futures: Till expiry, Cash (Delivery): Unlimited
• Risk — Futures: Higher (leverage), Cash (Delivery): Lower
• Settlement — Futures: Expiry, Cash (Delivery): T+1
Keep these five points in mind:
• Max risk per trade — 2% of capital
• Stop loss — Always use
• Position size — 1 lot initially
• Max open positions — 2-3
• Margin utilization — < 50%
Warning: Leverage in futures = amplified risk. A 1% move in the underlying = 5-10% impact on capital.
Keep these points in mind:
• 📌 FUTURES TRADING QUICK REFERENCE
• WHAT IS IT:
• 📊 Derivative contract to buy/sell at fixed price
• 📊 Obligation (must execute at expiry)
• 📊 Margin-based (10-15% of contract)
• 📊 Daily MTM settlement
• TYPES:
• 📊 Index Futures — Nifty, Bank Nifty
• 📊 Stock Futures — Individual stocks
• 📊 Currency Futures — USD/INR
• 📊 Commodity Futures — Gold, Crude
• MECHANICS:
• 📊 Margin: ~20% of contract value
• 📊 MTM: Daily P&L settlement
• 📊 Expiry: Last Tuesday of month
• 📊 Settlement: Cash (index), Physical (stocks)
• STRATEGIES:
• ✅ Directional (long/short)
• ✅ Hedging (portfolio protection)
• ✅ Spread trading (calendar)
• ✅ Arbitrage (cash-futures)
• RISK:
• 💰 Leverage = amplified risk
• 💰 1% move = 5-10% capital impact
• 💰 Max 2% risk per trade
• 💰 Always use stop loss
• 💰 Margin call risk
• REQUIREMENTS:
• 📋 F&O activated demat account
• 📋 Margin money (₹1-2 lakh)
• 📋 Understanding of MTM
• 📋 Risk management discipline
Keep these four points in mind:
• Options Trading Strategies
• How Does F&O Expiry Work?
• What Is Risk Management?
• What Are Option Greeks?
The Retail Trader — educational market analysis. Not investment advice.
This article is for educational purposes only — no buy or sell recommendation, no claim of guaranteed returns, and no advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or the official source.