11.2What is a futures contract?
1What is it?
An exchange-traded futures contract specifies the underlying (e.g. Nifty or Reliance), lot size, expiry date and price. Indian equity futures are cash-settled for indices; stock futures are physically settled at expiry.
2Why does it exist?
Standard contracts make trading easy and the exchange clearing corporation guarantees both sides.
3Stock market example
Example: "NIFTY NOV FUT" at 25,000, lot 65 → contract value = 25,000 × 65 = ₹16,25,000.
4Quick revision
- Standardised: underlying, lot, expiry.
- Exchange guarantees trades.
- Index futures cash-settled; stock futures physically settled.
5Knowledge check
Q1. Nifty fut at 24,800, lot 65. Contract value?Show answer
₹16,12,000.
Q2. Are stock futures cash or physically settled in India?Show answer
Physically settled at expiry.
Q3. Who guarantees futures trades?Show answer
The exchange clearing corporation.
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