Futures Trading Explained: Index, Stock, And Commodity Futures For Indian Traders

Futures are the simplest derivative instrument: a binding contract to buy or sell an underlying asset at a fixed price on a fixed future date. No optionality, no premium, no Greeks — just leveraged, linear exposure to the underlying. For traders with directional views and the discipline to size them, futures are often a better fit than options.

This guide walks through what a futures contract actually is, how Indian futures markets work, and when futures are the right tool versus when stocks or options would serve better.

What a futures contract is

A futures contract specifies:

• Underlying — what the contract is on (Nifty 50 index, Reliance shares, gold, USDINR, etc.).
• Lot size — the standardised quantity per contract. Nifty futures recently use a lot size of 75; Bank Nifty 30; individual stock futures vary.
• Expiry — the date on which the contract settles. Indian equity futures: last Thursday of the month.
• Tick size — the minimum price movement (₹0.05 for most equity futures).

When you "buy" (go long) a Nifty futures contract at 25,000, you're entering an obligation to buy Nifty at 25,000 on expiry. If Nifty is at 25,200 at expiry, the contract is worth 200 × 75 = ₹15,000 in your favour. If Nifty is at 24,800, the contract is worth ₹15,000 against you.

Mark-to-market settlement happens daily — your broker credits or debits your account each day based on the futures price change. You don't wait until expiry to realise gains or losses; the position is continuously settled.

How leverage works in futures

You don't pay the full notional value to enter a futures position. You post margin — typically a small fraction of the contract's value, set by the exchange. SPAN margin covers the daily worst-case scenario; exposure margin is an additional cushion.

For Nifty futures with the index at 25,000 and lot size 75, the notional value of one lot is ₹18,75,000. The required margin is typically in the range of ₹1.5–2 lakh. You're controlling ₹18.75 lakh of exposure with about ₹1.75 lakh of margin — roughly 10–11x notional leverage.

This is good news for capital efficiency and bad news for unconscious risk-taking. A 1% adverse move in Nifty translates to a 10–11% loss on your margin. A 5% move (an entirely normal weekly range) translates to ~50% margin loss.

The cardinal rule from position sizing explained applies with extra force here: size by money risked, not by margin available. Just because you can take 8 lots of Nifty futures with your ₹15 lakh account doesn't mean you should — that's roughly 8x leverage, and the wrong week will hurt enormously.

What you can trade in Indian futures

Three main categories of futures listed on Indian exchanges:

1. Equity futures

Index futures — Nifty 50, Bank Nifty, Nifty Midcap, Sensex (BSE). The most liquid; tightest spreads; most efficient hedging instruments. Most retail futures activity is here.

Stock futures — individual large-cap and select mid-cap stocks. Lot sizes vary widely. Less liquid than index futures, with wider spreads on smaller names. Note: Indian stock futures settle physically — at expiry, you take or give delivery of shares unless you've closed or rolled the position.

2. Currency futures

USDINR is the most traded; EURINR, GBPINR, JPYINR also available. Lot sizes are typically $1,000 (or equivalent). Useful for traders with currency views or for hedging international exposure. Liquidity is decent for major pairs and thin for cross pairs.

3. Commodity futures (MCX/NCDEX)

Gold, silver, crude oil, natural gas, and various agricultural commodities. Lot sizes and margins vary widely. Commodity futures have unique characteristics — overnight gap risk on global markets (especially crude during US-driven moves), wider spreads, and different trading hours from equity markets.

For most Indian retail traders starting in futures, the path is: index futures (Nifty / Bank Nifty) → eventually stock futures on names you trade actively → commodity or currency only if you have specific knowledge or hedging needs.

When futures are the right tool

A few common scenarios where futures fit well:

Pure directional view on an index. If you think Nifty will rally 4% over the next two weeks, Nifty futures are arguably the cleanest expression — leveraged, linear, no theta, tight spreads. Far simpler than constructing an options strategy and avoiding options-specific risks (IV crush, time decay).

Hedging a long-equity portfolio. Short index futures against a long stock book provides clean directional hedge with high capital efficiency. Many institutional and HNI investors use this routinely.

Calendar arbitrage and basis trading. The price difference between near-month and far-month futures (the calendar spread) can be traded. Mostly an institutional pursuit, but worth understanding even as a retail trader.

Short positions on stocks you don't own. Stock futures let you go short on individual names without the cash-equity short-selling restrictions that apply to retail traders.

When futures are the wrong tool

Defined-risk directional bets. If you want to risk a specific rupee amount and not a rupee more, options buying caps loss at premium paid. Futures losses are theoretically unlimited until you close — a stop loss bounds the loss in practice but only if executed.

Views where you might be early. Futures cost nothing to hold (no theta), but adverse moves consume margin. If you might be early on a thesis, options give you a defined window with bounded loss; futures force you to manage the position actively or take the unbounded MTM hits.

Small accounts. Required margin per lot can be substantial. ₹1.5–2 lakh per Nifty lot means a ₹2 lakh account can take exactly one lot — and a single 2% adverse move would consume the entire margin. Futures don't scale down well to small accounts.

Volatility views. If your view is "Nifty will move significantly but I don't know which way" (e.g., before earnings), futures can't express it — they're directional. Options structures (straddles, strangles) are the right tool.

Rolling positions and expiry mechanics

Futures expire monthly. As a position approaches expiry, traders typically roll to the next month — close the current contract and open the same direction in the next-month contract. Rolling is a single click in most platforms but involves a small cost (the spread between contracts plus brokerage).

If you don't roll and you don't close before expiry:

• Index futures settle in cash. Your position closes at the final settlement price (typically the closing index value on expiry day or a weighted average over the final period).
• Stock futures settle physically. You take or give delivery of the underlying shares. This requires the full purchase value in your account for long positions and delivery of shares for short positions. For most retail traders, this is operationally painful — close or roll well before expiry to avoid surprises.

The "rollover percentage" published before expiry indicates how many traders are carrying positions to the next month. High rollover near expiry suggests strong conviction; low rollover suggests positions are being closed rather than carried.

Practical guardrails

• Use stops as hard orders, always. Mental stops fail under stress; futures' linear leverage punishes failure quickly.
• Cap leverage at 2–3x of account. Just because the broker allows 10x doesn't mean you should use it. Risk per trade should still be 0.5%–1% of account, sizing the futures position accordingly.
• Be aware of overnight gap risk. Index futures can gap on news; stock futures can gap on earnings or company-specific events. Small positions reduce gap impact dramatically.
• Don't hold through earnings unless you specifically want event exposure. Futures don't have IV crush like options do, but underlying gap moves can wreck a position before any stop fires.
• Roll positions a few days before expiry. The last 3 days before expiry have widening spreads and increased volatility; roll on day T-5 or T-3 of expiry week for cleaner execution.

The risk simulator is useful for visualising how futures-leveraged positions interact with win rate and stop discipline — the equity-curve distributions widen meaningfully as effective leverage rises.

What to read next

• Options trading basics — the non-linear cousin of futures.
• How leverage works in trading — the broader leverage framework.
• Position sizing explained — the math futures make less forgiving.
• How to build a trading plan — where futures specifically belong in a written framework.

Futures are powerful, simple, and dangerous in the same way a car is — fine when used responsibly, lethal when you forget the speed limit. The traders who use futures well treat them as capital-efficient expression of a view; the ones who get hurt treat them as leverage to amplify mediocre views.