A direct, obligated bet on price — with daily settlement.

A futures contract is a standardized agreement to buy or sell an underlying asset — a stock, index, or commodity — at a predetermined price on a specific future date. Unlike an option, which gives the right but not the obligation, a futures contract obligates both parties to fulfil it (or close the position before expiry).

Because futures are exchange-traded and standardized, the contract terms — lot size, expiry date, tick size — are fixed by the exchange rather than negotiated between the two parties, which is what makes them liquid and easily tradable compared to a private, customized forward contract.

Most futures traders never intend to actually deliver or take delivery of the underlying asset — the position is typically closed (an offsetting trade) before expiry, or in the case of index futures, settled in cash since there's no physical index to deliver.

Every futures contract has a fixed lot size — the number of shares or the multiplier applied to an index that one contract represents — set by the exchange and not something an individual trader can adjust. Trading one contract means trading exactly that lot size, not an arbitrary quantity.

Futures contracts have a fixed expiry, typically the last Thursday of the contract month for monthly contracts on Indian exchanges, after which the contract stops trading and is settled. Traders can hold contracts across multiple available expiries (near, next, and far month) simultaneously.

Contract specifications, including lot size, are periodically revised by the exchange based on the underlying's price level, so the lot size for a given stock's futures contract isn't necessarily fixed forever.

Futures positions are marked-to-market daily: at the end of each session, gains and losses based on that day's closing price versus the previous settlement price are calculated and settled in cash, credited or debited to the trader's account, rather than accumulating unrealized until the position closes.

This means a futures position's daily P&L is realized cash flow each day, not just a paper gain or loss — a losing position genuinely reduces available margin day by day, which is why margin calls (see Margin & Leverage) are a direct consequence of adverse MTM settlement.

MTM settlement is one of the structural differences between futures and simply holding the underlying — a stock holder only realizes gains or losses on sale, while a futures position realizes them daily regardless of when the position is eventually closed.

Basis is the difference between a futures contract's price and the underlying's spot price. Contango describes a situation where the futures price is higher than spot (a positive basis) — common when there are costs to holding the underlying until expiry, like financing cost. Backwardation is the opposite: futures priced below spot.

As a futures contract approaches expiry, its price converges toward the spot price, since at expiry the contract must settle at (or very close to) the spot value — this convergence is a structural feature of how futures are priced, not a market prediction.

Basis and its behavior matter most for traders holding positions across expiry or running strategies that compare spot and futures pricing directly, since the basis represents a real, quantifiable cost or benefit embedded in the contract's price relative to the underlying.

Rollover is closing a futures position in the expiring contract and simultaneously opening an equivalent position in the next available expiry, done by traders who want to maintain their market exposure past the current contract's expiry date without taking delivery or cash settlement.

Rollover activity typically increases in the days leading up to expiry, and the relative pricing between the expiring and next-month contract (part of the basis) can shift during this period as open interest migrates from one expiry to the other.

Because rollover involves closing one position and opening another, it incurs transaction costs and briefly changes the trader's net exposure during the transition, which is why the rollover window itself is often watched as a period of distinct market activity.

A futures contract obligates both the buyer and seller to transact at the agreed price, with symmetric, theoretically unlimited risk and reward in both directions. An option gives the buyer the right without the obligation, capping the buyer's maximum loss at the premium paid while the seller carries the larger, asymmetric risk in exchange for collecting that premium.

Margin requirements reflect this difference — buying an option requires only the premium, while writing (selling) an option or holding a futures position requires margin against potential adverse moves, since both carry open-ended risk exposure.

The choice between the two often comes down to the view being expressed: futures are typically used for a direct, symmetric directional or hedging view, while options allow expressing more specific views — on a price range, on volatility, or on a level not being breached — with a defined risk profile.