What Are Futures in India? Lot Size, Margin and MTM

You do not pay the full value of the deal. You leave a deposit — called margin — with your broker and the exchange. That single fact is what lets futures multiply your gains and your losses alike.

One more thing to file away early. Index futures like Nifty are settled in cash, but single-stock futures can hand you a real delivery obligation at expiry. We will come back to that.

Futures are the gateway product into derivatives trading in India. They are also where most retail traders take their first big loss.

The mechanics are simple. The leverage is not.

This article walks through what a futures contract actually is, the five fixed pieces of every NSE future, a worked Nifty trade in rupees with a calculator you can play with, who actually uses futures, and where retail traders typically blow up.

What a futures contract actually is

Imagine you are an onion farmer in Maharashtra. The harvest is six months away. The current spot price is ₹30 a kilo, but onion prices swing wildly.

By the time you sell, the price could be ₹15 or it could be ₹60. That uncertainty is the central problem of any commodity producer's life.

You walk into a deal with a wholesaler in the local mandi. Both of you agree, in writing, that he will buy your entire harvest at ₹35 a kilo, six months from today. Neither of you knows what the actual spot price will be when that day arrives.

You have just signed a futures contract.

You get a guaranteed price for your crop. He gets a guaranteed supply for his business. Both sides have removed price uncertainty from their operations. That is the original purpose of a futures contract — agriculture, not Dalal Street.

When the same idea is applied to a stock or an index, you get a stock future or an index future. Instead of onions, the underlying is Reliance or Nifty.

And instead of a private handshake in a mandi, the contract is standardised by the NSE — which means the exchange fixes the rules so every trader is buying and selling the exact same product, and steps in between the two sides to guarantee the deal is honoured.

Here the settlement splits in two. An index future like Nifty is settled in cash at expiry, because there is no basket of "index" to deliver. A single-stock future, if you carry it to expiry, is settled by actual delivery of the shares (SEBI made physical settlement of stock derivatives compulsory from 2019).

The economics, though, are identical to the onion deal. You and the trader on the other side are locking in a price today for an asset that will be priced very differently later. That gap, in your favour or against, is your profit or loss.

How a futures contract works on the NSE

Every NSE futures contract has five fixed pieces. Once these are in your head, every future on every Indian stock or index works the same way.

A few of those deserve a closer look, because they are exactly where beginners are caught out.

On lot size, the exchange calibrates the quantity so that one contract is worth a meaningful amount of exposure. For index futures the minimum contract value at introduction is around ₹15 lakh; for single stocks it is around ₹5 lakh. Because the index level keeps moving, the NSE revises lot sizes from time to time — the Nifty lot was recently cut from 75 to 65 (NSE circular FAOP/70616). So treat any printed lot size as a snapshot, and confirm the current one before you trade.

On expiry, note that the NSE moved its equity-derivative expiry from Thursday to Tuesday in 2025 (NSE circular FAOP/68747). At any time three monthly contracts trade in parallel — the near, next and far month — and most of the volume sits in the near month.

On margin, the exchange does not charge a flat percentage. It runs a risk system called SPAN that sizes the deposit to the contract's recent volatility, then adds an exposure margin on top, and your broker usually adds a buffer of its own (NSE Clearing — margins). The number moves through the day, so the only figure you can trust is the one your broker's margin calculator shows just before you place the trade.

Mark-to-market is the piece that catches most beginners off guard. Every evening the exchange works out your profit or loss on the day's closing futures price. If the future moved against you, that loss is debited from your account that night; if it moved your way, the profit is credited.

A futures position is never quietly sleeping in the background. It is being settled in cash, every evening, until you close it or it expires.

A worked Nifty futures trade in rupees

Say Nifty is sitting at 24,000 on the spot — the live index level right now. The near-month Nifty future is quoting 24,050. You are bullish on the next few sessions and decide to buy one lot.

Start with two formulas. Everything else is just plugging numbers in.

The Nifty lot is currently 65 units (the NSE cut it from 75; lot sizes change, so check the live contract file). So your contract value is 65 × 24,050 = ₹15,63,250 — about ₹15.6 lakh. That sounds like serious money. You do not put it down.

Instead you leave a margin deposit. Margin is set by the exchange's risk system, not a fixed percentage — but as an illustration, if it worked out to roughly 12% of the contract value, that is about ₹1.9 lakh, before your broker's buffer. Treat this as a sketch, not a quote.

For roughly ₹1.9 lakh you are now controlling about ₹15.6 lakh of Nifty. That is a little over eight times leverage.

Now suppose Nifty climbs and the future moves from 24,050 to 24,350. Your profit is (24,350 − 24,050) × 65 = ₹19,500 — earned in a couple of days on a ₹1.9 lakh deposit, a little over a 10% return. The leverage is what makes it look so handsome.

Run the same trade in reverse. If the future instead slipped to 23,750, your loss is (24,050 − 23,750) × 65 = ₹19,500.

And that loss does not wait politely until you close the trade. The mark-to-market debit lands in your account that very evening. If it drops your balance below the required margin, your broker asks for fresh funds — or shuts the position at a loss.

The same leverage that turns a small Nifty move into a quick gain turns the same move the other way into a margin call.

Read that bar carefully. The same 1.25 per cent move that looks unremarkable on the index becomes a roughly 10 per cent swing on your margin balance. That works beautifully when you are right.

It works equally brutally when you are wrong. Most beginners size their futures positions as if the leverage does not exist, then are shocked when one bad week erases a quarter of their account.

Who actually uses futures and why

The Indian futures market has three distinct user groups. Each one is trying to do something completely different with the same product.

The hedger uses futures to remove price risk from an existing exposure. If the market drops, the futures profit cushions the cash portfolio's loss; if the market rallies, the futures loss is paid for by the cash portfolio's gain. The fund gives up some upside in exchange for downside protection.

The speculator uses futures to take a directional view with leverage. He has no underlying position to hedge — he simply believes Nifty is going up, or Reliance is going down, and wants to multiply his bet. This is where most retail flow sits, and most of the SEBI loss statistics come from this group.

The arbitrageur exploits price gaps between the cash and futures markets. When the future trades at a meaningful premium to spot, he buys the cash leg and sells the future; at expiry the two converge and he pockets the gap. This is a low-return, high-volume, professional game, dominated by institutions and prop desks, not retail.

Beginners often look at the second box and see the eight-times figure as opportunity. Experienced traders look at the same box and see eight-times responsibility.

The contract you are signing is the same in both cases. What changes is how the trader thinks about position size, stop placement and the maximum loss they are willing to wear before the position has even been entered.

Where retail traders blow up in futures

SEBI's September 2024 study found that 93% of individual traders lost money in equity F&O between FY22 and FY24 — aggregate losses of more than ₹1.8 lakh crore, and an average loss of about ₹2 lakh per losing trader (SEBI press release, Sep 2024). Futures sit at the heart of that statistic, alongside options.

The dangerous moment is when a beginner thinks margin is the cost of the trade. It is not. It is only the deposit.

The first place retail blows up is leverage. The eight-times leverage that looks like opportunity going in is the same eight-times leverage that turns a five per cent adverse move into a forty per cent account drawdown.

Most retail traders size their position based on the margin amount, not the contract value. The first volatile week of their trading life teaches them the difference.

Take Ravi. He has ₹2 lakh saved and sees that one Nifty lot needs only about that much as margin, so the lot looks affordable and he buys one.

What Ravi does not see is that one lot is ₹15.6 lakh of Nifty riding on his ₹2 lakh — and with almost nothing spare, the first few evenings of MTM debits can breach his margin before the trade has had time to work. One bad week does not dent Ravi's account. It empties it.

The second place is mark-to-market. The classic mistake is treating a losing future like a delivery share, holding through the drawdown and praying for the price to come back.

With delivery shares the loss stays on paper until you sell. With a future, the MTM debit chips away at your account every single evening — and if it takes your balance below the required margin, the position can be forced shut whether you are ready or not.

The third place is rollover and expiry. Many retail traders do not realise that a position still open at the Tuesday expiry is settled whether they wanted it or not — an index future in cash at the settlement price, and a single-stock future by physical delivery of the shares.

If they wanted continued exposure into the next month, they had to roll the position over before expiry. Forgetting to roll, or rolling on expiry afternoon when liquidity is thin, is a common and expensive beginner mistake.

The fourth place is position sizing. Because one Nifty lot ties up only about ₹1.9 lakh of margin, a trader with ₹10 lakh of capital is tempted to carry five or six lots.

That is ₹78 lakh to ₹94 lakh of Nifty exposure on ten lakh of capital. One bad week with that kind of sizing and the account is not down. It is gone.

Futures are not the enemy. The way most retail traders use them is.