What is a futures contract?

What is a futures contract?

A futures contract is a standardized legal agreement to buy or sell a specified quantity of an asset—such as stocks, indices, currencies, or commodities—at a set price on a future date. On FYERS, these contracts are traded on regulated exchanges and settled through clearing houses, ensuring performance by both parties.

Key features of a futures contract

  • Standardised contract: Defined by the exchange in terms of lot size, expiry, and pricing.
  • Exchange-traded: Traded on official exchanges like NSE or BSE. Counterparty risk is minimized by clearing mechanisms.
  • Obligation to settle: Both buyer and seller are bound to fulfill the contract at expiry—either by cash settlement or physical delivery (where applicable).

Example of a futures contract

Let’s break it down:

  1. A futures contract is created for 100 shares at ₹1,050, to be settled after 3 months.
  2. Total contract value = ₹1,05,000.
  3. If market price at expiry is ₹1,200 → Profit = ₹15,000.
  4. If market price at expiry is ₹900 → Loss = ₹15,000.

Your profit or loss depends entirely on the price difference at the time of expiry.

What if...

ScenarioResolution
Contract not honored by buyer/sellerThe exchange ensures compliance via margins and settlement enforcement.
Price moves unfavorablyYou are still obligated to honor the contract, possibly incurring a loss or facing a margin call.
Always monitor your futures positions via FYERS’ “Positions” tab and set alerts. Price swings can trigger margin calls or auto square-offs.

Last updated: 01 Jul 2025

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