📅 Futures basics: contracts, margin and daily settlement

🎯 In 30 seconds: A futures contract is an agreement to buy or sell something at a fixed price on a fixed date. On NSE you can trade futures on indices like the Nifty 50 and on about two hundred individual shares. One Nifty lot moves like ₹15 lakh or more of the index, but you only post a margin deposit of a fraction of that. Every evening the clearing corporation settles the day's profit or loss in cash. That is why futures can grow or drain an account much faster than shares, and why you should understand them before you trade one.

What a futures contract is

Picture a rice miller in Punjab and a biryani chain in Hyderabad. In June the miller worries rice prices will fall before the harvest. The chain worries they will rise. They agree today that in November the miller will deliver 10 tonnes at ₹40 a kilo. Both have removed a risk.

That private agreement is a forward contract. A futures contract is the same idea, made standard and traded on an exchange. Every contract on a given underlying has the same size, the same expiry dates and the same rules, so anyone can buy or sell one during market hours without negotiating terms with a stranger.

Words you will meet:

• Underlying: what the contract is based on. On NSE's equity derivatives segment that is an index (Nifty 50, Nifty Bank and a few others) or an individual share. Commodity and currency futures trade in their own segments.
• Lot size: the fixed number of units in one contract. You cannot buy half a lot.
• Expiry: the last day the contract trades. NSE's monthly equity futures expire on the last Tuesday of the month, as of October 2026. Nifty also has weekly options expiring every Tuesday, but its futures are monthly.
• Long: you bought the contract. You gain if the price rises.
• Short: you sold the contract. You gain if the price falls. Going short in futures is as simple as going long. You do not borrow shares.
• Clearing corporation: NSE Clearing Ltd stands between every buyer and every seller on NSE, so you never depend on the unknown person on the other side paying you.

Most futures traders close their position before expiry. Index futures settle in cash. Stock futures in India are different: if you hold them to expiry, they settle by actual delivery of shares. More on that below.

The contracts on NSE, in one table

NSE publishes a contract specification page for each product. The key points as of October 2026:

Lot sizes change. SEBI's framework asks exchanges to review them so that index contracts stay between ₹15 lakh and ₹20 lakh in value. NSE cut the Nifty lot from 75 to 65 for contracts expiring from January 2026, and NSE revised lot sizes for dozens of stock futures again on 30 September 2026. Always check the current lot size in your broker's order window or NSE's contract file before you trade.

Notional value: how big your position really is

The notional value, also called contract value, is the full rupee size of your exposure:

notional value = futures price x lot size

Say Nifty futures trade at 25,000. This is a hypothetical round number to keep the arithmetic easy.

One lot moves like ₹16.25 lakh of an index fund. If the Nifty rises 1%, you gain ₹16,250. If it falls 1%, you lose ₹16,250. That is true whatever margin you posted.

Margin in futures is a deposit, not a loan

When you buy shares with a broker's Margin Trading Facility, the broker lends you money and charges interest. Futures margin is different. It is a good-faith deposit that shows you can cover losses. Nobody lends you anything, so there is no interest. You simply have to keep enough money in your account.

NSE Clearing sets the minimum margin for each contract. It has two main parts:

• SPAN margin (initial margin): computed by NSE Clearing's SPAN system to cover a large one-day loss. NSE Clearing says it is based on 99% value at risk, and for futures it is worked out over a two-day horizon because the day's loss may not be collected before the next day starts.
• Extreme loss margin (ELM): an extra cushion on top. NSE lists it as 2% of notional value for index derivatives and 3.5% for stock derivatives, as of October 2026.

Brokers show SPAN plus ELM together as the margin needed to open one lot, and many brokers ask for more. Margins rise when markets get more volatile. The numbers in the example below are made up for teaching. Use your broker's margin calculator for real figures.

Daily settlement: a worked example

Futures are marked to market every day. At the close NSE Clearing fixes a daily settlement price. NSE's settlement price page, as of October 2026, describes it as the weighted average price of the futures contract in the last half hour of trading. Your position is valued at that price and the difference from the previous day is paid or received in cash. NSE Clearing settles it with brokers on the next working day (T+1). Your broker credits or debits your ledger.

Hypothetical setup: you have ₹2,00,000 in your trading account and buy one Nifty lot at 25,000. Assume the margin required is 11% of notional, so ₹1,78,750 at 25,000.

After day 3 the balance of ₹1,67,500 is below the ₹1,75,175 needed. You are ₹7,675 short. Add money before the broker's deadline, or the broker can close the lot at whatever price the market offers.

Leverage, in one calculation

Leverage is the ratio of the exposure you control to the money you put up.

leverage = notional value / margin posted

In the example: ₹16,25,000 / ₹1,78,750 = about 9 times. A 1% move in the Nifty is roughly a 9% move against your margin. A fall of about 11% would wipe out the whole margin.

From day 0 to day 3 the index fell from 25,000 to 24,500. That is a 2% drop. Someone who paid cash for ₹16.25 lakh of a Nifty index fund lost 2%, or ₹32,500. You also lost ₹32,500, but that was 16% of your ₹2,00,000.

The loss can also be larger than your deposit. If the market opens with a big gap at 9:15 a.m. after bad overnight news, your account can go negative, and you owe the broker the difference. With futures, you can lose more than you put in.

Futures prices are not exactly the index

The futures price is usually a little different from the index. The gap is called the basis. It comes from the cost of carry: if you bought the shares instead, you would tie up cash that could earn interest, but you would collect any dividends. NSE uses this formula for a theoretical futures price when a contract does not trade near the close:

F = S x e^(r x t)

Here S is the index, r is an interest rate and t is the time to expiry in years. With the Nifty at 25,000, an assumed 6% rate and 30 days to go, F is about 25,124. So the futures would sit about 124 points above the index. The gap shrinks to zero by expiry, because the index future settles at the index's own final settlement value that day.

This matters when you compare a futures chart with the index chart. They will not match point for point, and that is normal. When futures trade below the index, traders call it a discount, and it often happens when a large dividend is due.

Rollover: moving to the next month

Each contract expires, so a trader who wants to keep the position rolls it: sell the expiring month and buy the next one. Most traders roll in the last few days before expiry, when volume shifts to the next month. Brokers often show a "calendar spread" order that does both legs together.

A roll is two trades, so you pay charges twice, including securities transaction tax on the sell side. The price gap between the two months is mostly cost of carry, not a gain or loss in itself.

One expiry day rule to know: NSE Clearing does not give the usual calendar spread margin benefit on index futures that expire that day. So holding the expiring month and the next month together can need more margin on expiry day than on other days.

Stock futures end in delivery

This is the part many beginners miss. SEBI moved all stock derivatives to physical settlement in phases between 2018 and October 2019. If you hold a stock future until it expires:

• A long position means you must buy the full lot of shares at the final settlement price and pay the full value, not just margin.
• A short position means you must deliver the full lot of shares. If you do not have them in your demat account, you face the exchange's short delivery process and penalties.

Say you are long one lot of a hypothetical Sharma Foods future with a lot of 1,000 shares at ₹1,200. If you hold to expiry, you need ₹12,00,000 to take delivery. NSE Clearing collects extra "delivery margins" on such positions, rising in steps over the last few days before expiry under an NSE Clearing circular of 17 January 2020, and brokers usually raise margins in the final days or close positions on their own. Read your broker's expiry policy before you buy a stock future.

GIFT Nifty: the Nifty future you see at 7 a.m.

Morning market news often quotes GIFT Nifty. These are US dollar Nifty derivatives that trade on NSE International Exchange in GIFT City, Gujarat, under the International Financial Services Centres Authority. They moved there from the Singapore Exchange on 3 July 2023, when the old "SGX Nifty" was renamed. NSE says they trade for almost 21 hours a day, covering Asian, European and US hours.

Because GIFT Nifty trades while NSE is closed, its level gives an early hint of where the Nifty may open. It is a hint, not a promise. Rules for who may trade it differ from NSE's, so most resident beginners use it only as a signal. See Why Indian share prices move.

Who regulates futures, and how they are taxed

In India one regulator covers all of this. SEBI regulates equity, commodity and currency derivatives on recognised exchanges. Commodity futures moved to SEBI on 28 September 2015, when the Forward Markets Commission merged into it. The exchanges (NSE, BSE, MCX) set contract rules, and their clearing corporations set margins. Trade only through a SEBI-registered broker. Who runs and polices the market shows how to check one.

Profits and losses from futures are generally treated as business income, not capital gains, and charges like STT and stamp duty apply on each trade. Taxes for traders and What trading really costs cover the details. Check with a chartered accountant for your own case.

Why people use futures, and what the data says

• Hedging. A fund manager worried about a fall can sell Nifty futures instead of selling fifty stocks.
• Arbitrage. Some funds buy shares and sell the matching futures to earn the basis. Arbitrage mutual funds work this way.
• Capital efficiency. A deposit gives broad market exposure and frees cash for other uses.
• Speculation. Traders bet on the direction of an index or a share. This is where most individuals lose.

SEBI's August 2026 study of the equity derivatives segment found that about 66% of individual futures traders made net losses in FY26 (April 2025 to March 2026). Losses were smaller than in options, where 87.7% lost, but two in three is still a poor record. Average losses per person were larger in futures than in options, because futures positions tend to be bigger. Getting F&O enabled covers more of the study.

Futures belong to a family of leveraged products. Leverage everywhere compares them with MTF, options, commodities and the illegal forex apps.

Try it

Do this on paper, not with money.

1. Open the Nifty 50 F&O page on nseindia.com or the futures quote in your broker's app. Write down the near month futures price, the spot index and the lot size.
2. Work out the notional value of one lot and the basis (futures minus spot).
3. Use your broker's margin calculator to find the margin for one lot. Compute the leverage.
4. Find the biggest one-day percentage fall in the Nifty over the last year on niftyindices.com. Multiply it by your notional value and compare the rupee loss with the margin.
5. Write down how many lots, if any, you could hold if you risked no more than 1% of your capital per trade. Use Risk comes first as your guide.

Sources

• NSE: Nifty 50 F&O contract specifications
• NSE circular NSE/FAOP/70616 (3 October 2025): Revision in market lot of derivative contracts on indices
• SEBI: Master circular for stock exchanges and clearing corporations, Chapter 5, Exchange traded derivatives
• NSE: Equity derivatives margins (SPAN and extreme loss margin)
• NSE: Settlement mechanism for futures (daily mark to market and final settlement)
• NSE: Settlement price of futures contracts
• NSE: NSE International Exchange unveils a new identity for GIFT Nifty
• SEBI circular (16 January 2026): Introduction of Closing Auction Session in the equity cash segment
• SEBI circular (15 October 2026): Review of the closing auction session, market timings and settlement methodology for derivatives
• PIB: Merger of Forward Markets Commission with SEBI (28 September 2015)
• SEBI: Profitability of individual traders in the equity derivatives segment, FY25 to FY26 (August 2026)