Every serious retail trader in India eventually reaches a point where equities alone feel limiting. The ability to profit in falling markets, to hedge a portfolio against downside risk, or to control larger positions with smaller capital — these are the reasons traders graduate to the futures market. But futures are also the instrument that has wiped out the most retail accounts in India, almost always due to a fundamental misunderstanding of how they work.
This guide is designed to fix that. By the end, you will understand what a futures contract actually is, how lot sizes and margins work, what rollover means, and how to use Nifty futures for both directional trading and portfolio hedging.
What Is a Futures Contract?
A futures contract is a legally binding agreement to buy or sell a specific underlying asset at a predetermined price on a specific future date — the expiry date. In India, the most popular futures contracts are on:
- Indices: Nifty 50, Bank Nifty, Nifty Midcap Select, Sensex
- Stocks: Individual F&O-eligible stocks (approximately 200+ on NSE)
- Commodities: Gold, Silver, Crude Oil (on MCX)
- Currency: USD-INR, EUR-INR pairs (on NSE/BSE currency segment)
Unlike options, which give you the right but not the obligation, futures contracts carry an obligation. If you buy a Nifty futures contract and hold it to expiry, you are obligated to settle at the final settlement price — which for index futures is always cash-settled, not physical delivery.
Index futures (Nifty, Bank Nifty) are always cash-settled in India — no physical delivery ever occurs. Stock futures can involve physical delivery if held to expiry, which is why most traders close or rollover positions before the last Thursday of the month.
Lot Sizes and Margin Requirements
One of the first things that confuses beginners is the concept of a lot. In futures trading, you cannot buy or sell a single unit of an index — you must trade in standardised lots as defined by SEBI and the exchanges.
| Contract | Lot Size (Units) | Approx Contract Value* | Approx Margin Required* |
|---|---|---|---|
| Nifty 50 Futures | 75 | ~₹18–20 lakh | ~₹1.5–2 lakh |
| Bank Nifty Futures | 15 | ~₹7–9 lakh | ~₹70K–1 lakh |
| Nifty Midcap Futures | 50 | ~₹6–8 lakh | ~₹60K–90K |
*Approximate values as of May 2026. Lot sizes and margins are revised periodically by SEBI. Always verify with your broker before trading.
SPAN and Exposure Margin
SEBI mandates that all futures traders maintain two types of margin with their broker:
- SPAN Margin (Standard Portfolio Analysis of Risk): The minimum margin required to hold the position overnight. Calculated by the exchange based on worst-case scenario risk models.
- Exposure Margin: An additional buffer margin required above SPAN to cover intraday volatility.
Together, SPAN + Exposure margin represents the total initial margin needed. If your account falls below the SPAN margin level during the day due to mark-to-market losses, your broker will issue a margin call — and if you do not top up immediately, they may square off your position.
Never use your full capital as margin. Keep at least 30–40% buffer above the minimum margin requirement to absorb intraday mark-to-market swings without getting margin-called out of a valid trade.
How Profit & Loss Works in Futures
Futures P&L is calculated in real time and settles daily through a process called mark-to-market (MTM). At the end of every trading session, your position is settled against the day's closing price. Profits are credited to your account; losses are debited. This is fundamentally different from equities, where unrealised P&L does not affect your cash balance until you actually sell.
Example: You buy 1 lot of Nifty futures at 24,000. The lot size is 75 units. If Nifty closes at 24,200, your MTM profit for the day is: (24,200 − 24,000) × 75 = ₹15,000. If Nifty falls to 23,800, your MTM loss is: (24,000 − 23,800) × 75 = ₹15,000 — debited from your account that same evening.
Expiry and Rollover
Indian equity futures contracts expire on the last Thursday of every month. Near, middle, and far month contracts are always available — most retail traders focus on the near-month contract for maximum liquidity.
Rollover is the act of closing your expiring near-month position and simultaneously opening an equivalent position in the next month's contract. Most traders rollover in the last week before expiry to avoid settlement risk and illiquidity in the final sessions of the expiring contract.
Monitor the rollover percentage data published by NSE each day in the final week before expiry. A high rollover percentage (above 70–75%) in a rising market signals strong bullish conviction — institutions are carrying positions forward, not exiting.
Using Nifty Futures for Portfolio Hedging
One of the most legitimate and underutilised uses of futures by retail investors is portfolio hedging. If you hold a portfolio of large-cap Indian stocks that broadly tracks the Nifty 50 and you expect a short-term correction — perhaps ahead of a Union Budget, RBI policy meeting, or global risk event — you can short Nifty futures to protect your portfolio without selling your stocks.
- 1
Calculate Your Portfolio Beta
Beta measures how much your portfolio moves relative to Nifty. A beta of 1.2 means your portfolio moves 1.2× the Nifty's move. Most large-cap heavy portfolios have a beta between 0.8 and 1.3.
- 2
Calculate Hedge Ratio
Number of lots to short = (Portfolio Value × Beta) ÷ (Nifty Futures Price × Lot Size). This gives you the exact number of Nifty futures contracts needed to hedge your entire portfolio.
- 3
Short Nifty Futures
Sell the calculated number of near-month Nifty futures contracts. Any fall in your portfolio value will be offset by gains in your short futures position.
- 4
Close the Hedge When Risk Passes
Once the event risk is over, buy back the Nifty futures to close your hedge. Your portfolio remains intact — you simply paid the cost of the hedge through any futures losses if the market went up instead.
Common Mistakes Beginners Make in Futures
- Over-leveraging: Futures allow you to control ₹18 lakh of Nifty with ₹1.5 lakh of margin. This leverage is a double-edged sword — beginners must start with the minimum position size and build experience before scaling up.
- No stop-loss: A Nifty futures position without a stop-loss can wipe out an entire trading account in a single session during high-volatility events. Always define your maximum acceptable loss before entering.
- Ignoring MTM settlement: Many beginners are surprised when losses are debited from their bank account overnight. Understanding that futures P&L settles daily is non-negotiable knowledge.
- Trading illiquid contracts: Always trade the most liquid expiry — typically the near-month contract. Far-month contracts have wider spreads and lower open interest, making entries and exits costly.
"In futures, size kills before skill does. Start small, stay alive long enough to learn, then scale."
— Chart Code Academy, Boisar
Frequently Asked Questions
What is futures trading in India?
Futures trading in India involves buying or selling standardised contracts obligating the trader to buy or sell an underlying asset (like the Nifty 50 index) at a predetermined price on a future expiry date. It is regulated by SEBI and traded on NSE and BSE.
What is the lot size for Nifty futures?
As of 2026, the lot size for Nifty 50 futures is 75 units and for Bank Nifty futures is 15 units. Lot sizes are revised periodically by SEBI based on contract value norms — always verify with your broker before placing trades.
What is margin in futures trading?
Margin is the capital you must deposit with your broker to hold a futures position. SEBI mandates SPAN + Exposure margin. For Nifty futures, the total initial margin is typically around 8–12% of the contract's total value.
What is rollover in futures?
Rollover is closing your expiring futures position and simultaneously opening an equivalent position in the next month's contract to maintain your market exposure beyond the current expiry date. Most traders rollover in the last week before the final Thursday of the month.