What Is a Futures Contract? A Beginner's Guide

Short answer: A futures contract is a standardised, exchange-traded agreement to buy or sell a specific quantity of an asset at a predetermined price on a set future date. In India, index and stock futures trade on the NSE/BSE and commodities on MCX/NCDEX, with positions settled via daily mark-to-market.

Key features

• Standardised — lot size, expiry and tick size are fixed by the exchange.
• Exchange-traded & cleared — a clearing house guarantees the trade, removing counterparty risk.
• Margin, not full value — you post a fraction (margin) of the contract value, which creates leverage.
• Daily mark-to-market — gains/losses settle to your account every day, not just at expiry.
• Expiry — Indian equity futures typically expire monthly; you can square off any time before.

How a futures trade works

1. You buy (long) or sell (short) a futures contract by posting initial margin.
2. Each day, the position is marked to market — profit or loss is credited/debited.
3. You close by taking the opposite trade before expiry, or let it settle at expiry.

Because P&L moves one-for-one with the underlying, futures are a clean way to take directional views or hedge — without the time decay of options. See futures vs options.

Common uses

• Speculation — leveraged directional bets.
• Hedging — offsetting risk in a stock/portfolio. See hedging with futures & options.
• Synthetic exposure — combined with options to build synthetic positions.

FAQ

Do I have to take delivery at expiry? Most traders square off before expiry. Settlement (cash or physical) depends on the contract — many index futures are cash-settled; some stock futures are physically settled.

What's the minimum to trade futures? The exchange-set margin for one lot — a fraction of the contract's notional value, but losses can exceed it on a sharp move.

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