Futures

Futures contracts are standardised, legally binding agreements to buy or sell a specified quantity of an underlying asset — equity index, individual stock, currency, commodity, or interest rate instrument — at a predetermined price on a specified future settlement date. Unlike forward contracts (which are OTC and customisable), futures are exchange-traded with standardised contract sizes, expiry dates, and settlement procedures — with the exchange's clearing corporation acting as counterparty to all trades, eliminating bilateral counterparty risk. In India, equity index futures (Nifty 50, Bank Nifty, FinNifty, Sensex) and individual stock futures are actively traded on NSE and BSE — with Nifty 50 futures among the most liquid index futures contracts in Asia. Futures require a margin deposit — typically 10% to 20% of the notional contract value — providing significant leverage that amplifies both gains and losses proportionally. Daily Mark-to-Market (MTM) settlement ensures that gains and losses are credited and debited from the margin account each day — preventing the accumulation of large unpaid obligations. Futures are used for three primary purposes: hedging (portfolio managers selling index futures to reduce market exposure), speculation (traders taking leveraged directional views), and arbitrage (exploiting price differences between futures and their underlying cash market). In India, all equity futures contracts are cash-settled at expiry — no actual share delivery occurs except for stock futures and options where physical settlement has been mandated by SEBI since 2019.