Chapter 7 · Futures
How a futures contract works
An agreement to trade later at a price agreed now, with margin, leverage and daily settlement.
13 of 66 · 10 min
A futures contract is a binding agreement to buy or sell a fixed quantity at a fixed price on a fixed date. Unlike an option, both sides are obliged.
| Term | Meaning |
|---|---|
| Contract size | Units per contract — you trade contracts, not shares |
| Expiry | The date the contract settles |
| Initial margin | Deposit required to open a position |
| Maintenance margin | The level below which you must top up |
| Mark to market | Daily settlement of gains and losses in cash |
| Basis | Futures price − spot price |
| Cost of carry | Interest and storage costs that explain the basis |
| Roll over | Closing a near contract and opening the next |
Leverage, worked
A contract controls 100 shares at Rs 500 — Rs 50,000 of exposure. Initial margin is Rs 7,500.
- Leverage = 50,000 ÷ 7,500 = 6.7×
- Price rises to Rs 530: profit = 100 × 30 = Rs 3,000 → +40% on margin from a 6% move.
- Price falls to Rs 470: loss = Rs 3,000 → −40% on margin from a 6% move.
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