Futures Contracts: The Obligation to Act

One trader can play different roles on different days. Exchange data groups traders by type, such as clients, institutions and proprietary traders. Those labels say who the trader is, not why a trade was placed. Read them as context, not as a forecast.

At the assumed 25,000 quote, one lot represents 25,000 × 65 = ₹16,25,000 of notional exposure. Notional means the full value represented by the position. It is the scale of your exposure, not the cash purchase price of the future. A one-point price change changes one lot’s profit or loss by ₹65. A 1% change in the quote is 250 points, or ₹16,250 per lot, which is a better yardstick than a single point because it works at any index level. Two lots double every figure, as the table in the figure shows.

A tick is the smallest permitted price step. At our assumed 25,000 index level, NSE’s current index-futures tick is 0.10, so one tick is worth 0.10 × 65 = ₹6.50 per lot. Monthly futures currently expire on the last Tuesday, adjusted to the previous trading day for a trading holiday. Read the actual date on the contract. Stock-futures lots and ticks must be checked separately.

The straight lines show symmetric sensitivity: every additional point has the same rupee effect. Futures have no option premium to recover. That does not mean time, financing or dividends have no effect; these can change the futures price relative to spot. The chart shows a selected range, rather than a maximum possible loss.

A price cannot fall below zero, so a long’s loss has a floor. That floor is far below the margin, so the loss can still be much larger than the deposit. A short’s loss has no upper limit, because a price can keep rising. A confident forecast is no substitute for a position size you can fund.

A 500-point move against you costs ₹32,500, or 13% of the ₹2,50,000 account. A 5,000-point move costs ₹3,25,000, more than the margin and more than the account. These are stress sums, not forecasts. Margin tells you what is needed to carry the position. It does not tell you what you might lose.

Requirements can rise while losses eat into your equity. Your broker may ask for more funds, refuse new orders or close positions under its risk policy, and none of that guarantees an exit price. Pledged shares count only after a haircut, and the value of collateral is not cash for paying MTM.

The distance depends on the cash behind the lot, not just the lot. With ₹5,00,000 in the account, the same lot has a ₹3,20,000 buffer above the assumed margin. That is about 4,923 points, or 19.7%, and the exposure is 3.25 times the account instead of 6.5. So funding the minimum margin is not the same as being safe. Position size and spare cash set the distance.

The three cash movements add up to −₹3,250, which is exactly (24,950 − 25,000) × 65. That total is a check, not another debit on top of the daily MTM. The short side has the opposite cash movements. Moving the reference forward each day never erases the trade’s running result.

The path matters for funding. Had Day 1 settled at 23,800, the long would lose ₹78,000 and be left with ₹1,72,000, below the assumed ₹1,80,000 requirement. A later recovery would not undo that shortfall. NSE Clearing normally settles daily MTM through clearing members on T+1. Members may choose to pay it on T+0, but payouts stay T+1. Your own ledger and withdrawable balance can differ, so the daily sum is not a promise of instant bank cash.

Open Indian stock futures are settled by delivery. A long receives shares and must pay for them. A short delivers shares. Delivery here means electronic transfer to a demat account, not paper certificates. The final MTM and the share delivery are separate obligations. Some can be netted under clearing rules, but never assume a stock future simply settles in cash.

For illustration, a delivery quantity of 500 shares at an assumed ₹1,500 settlement price represents ₹7,50,000 of share-delivery value before charges. These are teaching inputs, not a named stock’s current lot or price. Opening margin alone does not fund delivery. Check the selected contract, delivery margins and broker deadlines well before expiry; the official final price need not be the last quote you saw.

A simplified equity-index fair-value model is spot plus financing cost minus expected dividend points. With assumed spot 25,000, annual financing 6%, 30 days remaining and 50 expected dividend points, the estimate is 25,000 + (25,000 × 6% × 30 ÷ 365) − 50 ≈ 25,073.29. This model uses assumptions; it is not an executable quote or a risk-free trade after costs.

As expiry nears, the time left to carry shortens, and settlement ties the contract to its reference level. The gap can widen or even change sign on the way. It does not shrink in a neat straight line. Even with spot unchanged, a change in basis changes your result. And quotes taken at different moments can show a gap that is not there.

Contango means later expiries are priced higher than earlier ones. Backwardation is the reverse. That compares two futures with each other, which is not the same as a future’s premium or discount to spot. Read the quotes and their dates first. Neither word tells you where the market will go next.

In a separate illustration, buy the near month at 25,000, sell it at 25,200 and buy the next month at 25,280. The old one-lot trade has +₹13,000 gross cumulative profit, including any MTM already settled. The new trade starts from 25,280 and its subsequent result is measured from that entry.

The 80-point gap between the two quotes is ₹5,200 for 65 units. It is a calendar price spread. It is not a ₹5,200 fee taken from the old result. It shapes your new entry and your carry. Brokerage, taxes, exchange charges, the bid–ask spread and slippage are separate costs.

If you open the next month without closing the near month, both positions stay open. Rolling a loss does not turn it into a profit. Ask again why you want the exposure, what the new contract’s size and margin are, and how you will fund it. Rollover and open-interest data show positioning. They do not reveal what each trader intends.

Now let her shares fall 5% while the future falls only 2%. The portfolio loses ₹1,62,500 and the hedge gains ₹65,000, so she is down ₹97,500. Stock weights, company news, dividends and basis can all open a gap like this. Beta estimates how much a portfolio moves with the index, but it is not a guaranteed relationship. Whole lots also leave her slightly over- or under-hedged.

How many lots? Equal rupee value is a start, but a portfolio that moves more or less than the index needs adjusting. A common rule of thumb is lots = portfolio value × beta ÷ (futures price × lot size). If Maya’s portfolio has an estimated beta of 1.2 against NIFTY, ₹32,50,000 × 1.2 ÷ ₹16,25,000 = 2.4 lots. Futures trade in whole lots, so she can choose 2 (about 83% of the beta-adjusted exposure) or 3 (about 125%). Neither is exact, and the beta is an estimate from past data that can change.

A rising market brings the opposite funding problem. The shares gain, but the short future needs cash for its daily losses, and an unrealised gain on shares is not cash in the futures account. A hedge needs a funding plan, a decision on when to exit it, and a review whenever the portfolio changes. Cutting one risk can create another.

A market order trades at the prices available and can slip. A limit order fixes your price but may not fill. A stop only triggers an order. It does not promise your planned price will be there. Gaps, thin depth, trading halts and technical failures can all block an exit, and a broker’s square-off does not cap what you owe after a bad move.

Volume counts contracts traded during a period; open interest counts outstanding contracts. Every outstanding future has both a long and a short. More open interest alone does not mean everyone is bullish. Compare bid, ask, quantities and expiry rather than relying on the last price. A busy market can still have poor depth at the instant of an order.

The examples show gross price results. Net results include brokerage, exchange and statutory charges, taxes and execution costs. NSE’s futures STT sell-side rate is 0.05% from 1 April 2026, applied to taxable sell turnover, not profit. Our 24,950 × 65 closing sale is ₹16,21,750; 0.05% is ₹810.875 before applicable rounding. This is only one cost component. A losing trade can incur transaction taxes; income-tax treatment is separate.

Before you carry a position overnight or into expiry, know how you will meet the cash calls and when your broker can ask for funds. After an executed exit, match the quantity, prices, daily MTM and charges against the contract note and your ledger, and confirm the position is really closed. If you now understand the agreement, its rupee size and its cash path, you are ready for the options lessons.