We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.


Key takeaways from this chapter

  1.  If you have a directional view on an assets price, you can financially benefit from it by entering into a futures agreement.
  2. To transact in a futures contract, one needs to deposit a token advance called the margin.
  3. When we transact in a futures contract, we digitally sign the agreement with the counterparty; this obligates us to honour the warranty.
  4. The futures price and the spot price of an asset are different; this is attributable to the futures pricing formula (we will discuss this topic later)
  5. One lot refers to the minimum number of shares that needs to be transacted.
  6. Once we enter into a futures agreement, there is no obligation to stick to the agreement until the contract expires.
  7. Every futures trade requires a margin amount; the margins are blocked when you enter a futures trade.
  8. We can exit the agreement anytime, which means you can leave the deal within seconds of entering the contract.
  9. When we square off an agreement, we essentially transfer the risk to someone else. Once we square off the futures position, margins are unblocked.
  10. The money you make or lose in a futures transaction is credited or debited to your trading account the same day.
  11. In a futures contract, the buyer’s gain is the seller’s loss and vice versa.

12 comments

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  1. Prashant Chaudhary says:

    But Karthik I’ve read it somewhere that in “Futures” we are obliged to buy at the predetermind price. Whereas in “Options” we have this choice whether to buy or not (only loose the premium paid).
    Kindly explain.

  2. Nisarg B says:

    Choosing Intraday or Overnight which is best while doing futures?

  3. Divya says:

    Got to learn something new in the simplest manner. thank you very much.

  4. Shaik says:

    I have purchased futures 10qty @13 total 130 now market going down 9 rupee, loss 40 rupees, this loss amount also required to maintain in balance in my wallet/demat account, if not maintaining these loss what will impact to my purchased qty(not expiry)?

  5. Nihar Sharma says:

    Sir I have a doubt that when we pay margin in futures trading, for example if I pay Rs 1,00,000 margin then will the profit and loss be plus or minus from that or will it be plus or minus from the balance of my trading account.

    • Karthik Rangappa says:

      The margins are supposed to take care of the M2M. But sometime the margin requirements suddenly increase and therefore the need for having some balance in your trading account.

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