How Futures Contracts Work in India: Pricing, Settlement & Trading Guide
Blog by Aliceblue News Desk
27 April 2026
8 minutes
It’s 2:47 AM; the markets are closed, but your phone screen glows with red numbers. You bought 1 lot of Bank Nifty futures at 48,200 yesterday afternoon, nearly ₹14.5 lakh worth of the index with just ₹1.8 lakh margin. Now, global cues have turned ugly overnight, and your heart is pounding. One wrong move tomorrow and you could lose more than your monthly salary or wake up to a life-changing profit.
If you’re reading this, you’ve probably felt that same mix of excitement and fear. Whether you’re a complete beginner wondering “What even is a futures contract?” or an intermediate trader struggling with mark-to-market losses, this guide is written for you.
In this comprehensive 2026-updated guide, you’ll discover exactly how futures contracts work in India, from pricing formulas used on NSE and MCX to daily settlement, expiry rules (now on Tuesdays), physical delivery nightmares (and how to avoid them), and a complete step-by-step trading playbook.
What Are Futures Contracts?
A futures contract is a standardised, legally binding agreement to buy or sell an underlying asset (index, stock, commodity, or currency) at a predetermined price on a specific future date.
Key features that make futures unique in India:
- Obligation: You must fulfil the contract (or square off before expiry).
- Standardised: Lot size, expiry, and quality are fixed by the exchange.
- Exchange-traded: Traded on NSE or MCX with complete transparency and zero counterparty risk.
- Leverage: Control large positions with a small margin (but remember: leverage works both ways).
Futures vs Forwards vs Options (Quick Comparison Table)
Feature | Futures | Forwards | Options |
Standardization | Yes (exchange) | No (custom) | Yes |
Obligation | Yes (both sides) | Yes | No (buyer has the right) |
Settlement | Daily MTM + Final | Only at expiry | Premium-based |
Traded on | NSE / MCX | OTC | NSE / MCX |
Risk | High (leverage) | High (counterparty) | Limited to premium |
Futures Trading in India: Regulations, Exchanges & Types
Regulator: Securities and Exchange Board of India (SEBI)
Major Exchanges:
- NSE: Equity, Index, and Currency futures
- MCX: Commodity futures (gold, crude oil, silver, etc.)
- BSE: Limited equity derivatives
Main Types of Futures in India (2026):
- Index Futures: Nifty 50, Bank Nifty, Finnifty, Midcap Select (cash settled)
- Stock Futures: Individual company shares (physical settlement mandatory)
- Commodity Futures: Gold, Silver, Crude Oil, Natural Gas, etc. (MCX)
- Currency Futures: USDINR, EURINR, etc.
Expiry Rule (Important 2026 Update):
All NSE indices and stock derivatives now expire on the last Tuesday of the month (changed from Thursday, effective September 2025). If Tuesday is a holiday, it shifts to the previous trading day.
How Futures Pricing Works in India (The Cost-of-Carry Formula)
A futures price is not random; it follows the cost-of-carry model, and understanding this separates serious traders from gamblers.
Formula:
- F = S × (1 + rf × (x/365)) – d
Where:
F = Fair futures price
S = Spot price of underlying
rf = Risk-free rate (use the latest RBI 91-day T-bill rate, currently ~6.5-7%)
x = Calendar days to expiry
d = Expected dividends (for stocks/index) or storage costs (for commodities)
Real Example:
- Nifty spot = 24,050
- Days to April expiry = 15
- Risk-free rate = 6.8%
- Dividend yield adjustment = ₹38
Fair futures price = 24050 × (1 + 0.068 × (15/365)) – 38 = ~24,085.
If the actual futures price is 24,120→, it is trading at a premium (contango).
If it is 24,020 → trading at a discount (backwardation).
Factors Affecting Pricing:
- Interest rates
- Dividend announcements
- Storage & convenience yield (commodities)
- Market sentiment & supply-demand
Arbitrage Opportunity: When futures deviate significantly from fair value, smart traders execute cash-and-carry or reverse cash-and-carry trades.
Margin Requirements & Leverage Explained
Margins (2026):
- Initial Margin: SPAN + Exposure Margin (typically 10-20% of contract value)
- Maintenance Margin: Lower threshold; breach triggers margin call
Example (Bank Nifty April 2026):
- Bank Nifty futures price = 48,200
- Lot size = 30
- Contract value = ₹1,446,000
- Approximate initial margin = ₹1.8-2.2 lakh (12-15%)
Leverage: 6-8x typical for index futures.
Tip: Always check the live SPAN margin on your broker’s margin calculator before placing a trade.
Daily Mark-to-Market (MTM) Settlement
This is what makes futures different from stocks.
Every day at the end of trading:
- Exchange calculates the daily settlement price.
- Your position is “marked-to-market”.
- Profit is credited / loss is debited to your trading account the same day.
Example:
- You buy 1 lot of Nifty futures at 24,050.
- Next day settlement price = 24,120.
- Profit = ₹70 × 65 lots = ₹4,550 (credited instantly).
- If the price falls to 23,980, a loss of ₹4,550 is debited.
If your account balance falls below the maintenance margin → Margin Call will be issued. You must add funds immediately or risk a square-off.
Expiry Day & Final Settlement in India (Cash vs Physical)
Two Types of Final Settlement:
Contract Type | Settlement Type | What Happens on Expiry |
Index Futures | Cash Settled | Pure cash profit/loss |
Stock Futures | Physical Delivery | You take/give actual shares |
Most Commodity Futures | Physical/Cash | Depends on contract (MCX rules) |
SEBI mandates physical settlement. If you forget to square off:
- Long position → You receive shares in your demat (pay full contract value)
- Short position → You must deliver shares
Many brokers auto-square off positions 1-2 days before expiry to avoid delivery.
Final Settlement Price: Average of the last 30 minutes of trading on expiry day (or closing price as per the exchange).
Step-by-Step: How to Trade Futures Contracts in India
- Open Trading + Demat Account with a SEBI-registered broker (like AliceBlue)
- Complete KYC & Add Funds.
- Choose Contract: Check lot size, expiry, and margin on the NSE/MCX website.
- Place Order:
- MIS (Intraday) or NRML (Carry forward)
- Market / Limit / Stop-Loss
- Monitor MTM Daily.
- Square Off before expiry (or prepare for delivery if physical).
Tip: Start with paper trading or 1-lot positions.
Popular Futures Contracts & Lot Sizes
Contract | Exchange | Lot Size | Approx. Contract Value (April 2026) |
Nifty 50 | NSE | 65 | ₹15.6 lakh |
Bank Nifty | NSE | 30 | ₹14.5 lakh |
Finnifty | NSE | 60 | ~₹12-13 lakh |
Reliance Futures | NSE | 250 | ~₹6-7 lakh |
Crude Oil | MCX | 100 | Varies |
Gold | MCX | 1 kg | ~₹75 lakh+ |
Common Futures Trading Strategies for Indian Markets
- Hedging (Farmer hedging soybeans on MCX)
- Speculation (Directional long/short)
- Calendar Spreads (Buy near-month, sell far-month)
- Cash & Carry Arbitrage
- Index Arbitrage
Risks of Futures Trading & How to Manage Them
- Leverage can wipe out capital in days.
- MTM losses are real and daily.
- Physical delivery risk on stock futures.
- Rollover costs and gaps.
Risk Management Rules:
- Never risk more than 1–2% of capital per trade.
- Always use stop-loss.
- Maintain a 2–3x margin buffer.
- Never trade without understanding MTM.
Benefits of Futures Over Spot Market
- High liquidity
- Easy short selling
- Lower transaction costs for large positions
- True 24/7 global exposure via currency & commodity futures
- Excellent hedging tool
Conclusion
Futures contracts can be one of the most powerful tools in the Indian market if you truly understand how they work.
You now know the pricing formula, daily MTM mechanics, 2026 expiry rules, physical settlement realities, and a complete trading process.
The right way to begin is starting small, paper trading for the first 3 months, and taking your first real futures position with strict risk rules. Open a trading account with AliceBlue today for low brokerage and excellent margin calculators and practice the cost-of-carry formula on today’s Nifty futures.
Frequently Asked Questions
For index futures, currency futures, and most commodity futures (cash-settled), only a trading account is required. However, a demat account is mandatory for stock futures because they are physically settled. If you plan to trade stock futures, open both trading and demat accounts with the same broker.
There is no regulatory minimum, but you should have at least ₹1.5-3 lakh in your trading account to comfortably trade one lot of popular index futures (after margin and a 2x buffer for MTM swings). Always start with paper trading until you are confident.
Futures trading profit/loss is treated as business income and taxed according to your income tax slab rate. You can deduct brokerage, STT, transaction charges, and other expenses. It is not considered capital gains (short-term or long-term).
Rollover means closing your position in the current expiry contract and opening the same position in the next month’s contract to keep your view alive. Most traders roll over 2-3 days before expiry to avoid physical delivery (in stock futures) or last-minute volatility.
Yes. Apart from the monthly contracts (which expire on the last Tuesday), the NSE offers weekly expiries for major indices such as Nifty 50, Bank Nifty, and Finnifty. This gives traders more frequent opportunities to take short-term positions.

Blog by Aliceblue News Desk



