Futures Trading in India: Basics, Margin and Rollover

What futures trading really means

Futures trading is the business of buying or selling a standardised contract that fixes a price today for an asset that will be settled on a fixed future date. You are not buying the asset itself in that moment. You are agreeing on a price now and settling the difference later. In India this happens on regulated exchanges, mainly the National Stock Exchange (NSE) and to a smaller extent the Bombay Stock Exchange (BSE), under rules set by the Securities and Exchange Board of India (SEBI).

The most actively traded futures in the country are index futures, built on the NIFTY 50 and the Nifty Bank (popularly called BANKNIFTY) indices. Alongside these sit single stock futures on large, liquid companies such as Reliance Industries and HDFC Bank. When you trade a NIFTY future you are taking a view on where the whole index will be, not on any one share. When you trade a Reliance future you are taking a view on that single stock with the help of leverage.

Two features make futures special. First, they are leveraged, which means you put up only a fraction of the contract value as margin and control the full value. Second, they are two way instruments, so you can profit from a falling market by selling first (going short) just as easily as you profit from a rising market by buying first (going long). This is very different from simply owning shares, where you usually only make money when prices rise.

It helps to place futures next to two cousins. A forward contract is a similar promise to trade later, but it is a private deal between two parties, with no exchange, no daily settlement, and real default risk. A future is simply a forward that has been standardised and brought onto an exchange, which adds margins, a clearing guarantee, and daily mark to market. Options are different again: an option gives the buyer a right but not an obligation, for a premium, whereas a future binds both sides equally. Knowing these distinctions keeps you from mixing up their very different risk profiles.

This article is educational. It explains how futures work so you can understand the mechanics, not so you can rush into a live trade. The smartest way to learn any of this is to practise on a paper trading account first, place mock trades against real market prices, and feel how margin and daily settlement behave before a single rupee of your own money is at stake. Nothing here is financial advice.

How a futures contract works in India

Every futures contract has a few fixed parts: an underlying (say NIFTY), a lot size (the fixed quantity per contract), an expiry date, and a settlement method. You cannot buy a random number of shares in a future. You trade in whole lots, and the exchange decides the lot size.

When you buy a future, a seller on the other side is taking the opposite bet. Futures are a zero sum game: for every rupee one side gains, the other side loses exactly that rupee, before costs. To make sure neither side runs away from a losing trade, both the buyer and the seller deposit margin, and the exchange clearing corporation (NSE Clearing) steps in between them as the central counterparty. This guarantee is why you never have to worry about who is on the other side of your trade. Counterparty default risk is effectively removed.

Indian index and stock futures are monthly contracts. At any time three serial monthly contracts trade together: the near month, the next month, and the far month. The near month is the most liquid because most traders concentrate there. Each contract stops trading on its expiry day, which the exchange sets. For both NIFTY and BANKNIFTY the monthly futures contract now expires on the last Tuesday of the month (NIFTY moved to Tuesday from 1 September 2025), subject to holiday shifts. On that day the contract is settled and ceases to exist.

Two more terms round out the picture. The tick size is the smallest price step a contract can move, which for index futures is five paise, so quotes change in tiny, orderly increments rather than random jumps. Open interest is the total number of contracts currently open across all participants, and unlike volume it counts standing positions rather than the day's churn. Rising open interest with a rising price suggests fresh money is backing the move, while rising open interest with a falling price suggests fresh shorts. Watching open interest alongside price gives you a feel for whether a trend has real participation behind it.

Unlike the cash market, where buying delivery of shares settles on a T plus 1 basis, a futures position is not settled once at the end. It is settled a little every day through a process called mark to market, and finally squared off or settled on expiry. Understanding that daily settlement is the single most important idea in futures, and we cover it in detail below.

Lot size: why futures move in big steps

A lot is the minimum quantity you can trade in one futures contract, and it is fixed by the exchange. You always trade one lot, two lots, three lots and so on, never a fraction. This is why even a small price move can mean a meaningful rupee gain or loss: you are holding many units at once.

For the index futures most beginners watch, the NIFTY 50 futures lot is 65 units and the BANKNIFTY futures lot is 30 units (these were reduced from earlier sizes, and the exchange revises lot sizes from time to time, so always check the latest NSE circular). So if NIFTY futures are quoting at 23,500, one lot represents a contract value of 23,500 multiplied by 65, which is ₹15,27,500. If BANKNIFTY is at 51,000, one lot is 51,000 multiplied by 30, which is ₹15,30,000. These are large notional values, and that is the whole point of leverage.

Single stock futures also trade in lots, but the lot size differs for each stock and the exchange revises it from time to time so that the contract value stays in a workable range. For example, a stock like Reliance or HDFC Bank trades in a lot of several hundred shares (the precise number is published by the exchange and updated periodically, especially after corporate actions such as bonuses or splits). Always check the current lot size on the contract specification before you trade, rather than assuming a number from memory.

Because the lot size is large, your profit or loss per point is large too. On a NIFTY future every one point move is worth ₹65 per lot. A 100 point move is ₹6,500 per lot. On BANKNIFTY every one point is worth ₹30 per lot, and a 200 point move is ₹6,000. This sensitivity is what makes futures powerful for hedging and dangerous for the careless.

Index futures versus stock futures

The biggest practical difference between index futures and stock futures in India is how they are settled at expiry. Index futures, like NIFTY and BANKNIFTY, are cash settled. There is no basket of shares to deliver, so on expiry the exchange simply pays or collects the difference between your trade price and the final settlement price in cash. You never have to take delivery of anything.

Stock futures are different. Since 2019 all single stock derivatives in India move to compulsory physical settlement if you hold them through expiry. That means if you are long a Reliance future at expiry, you are expected to take delivery of the shares and pay the full value, and if you are short, you must deliver the shares. In the final week before expiry, brokers ask for much higher delivery margins on open stock futures positions to make sure you can honour delivery. Most short term traders close or roll their stock futures well before expiry precisely to avoid this.

Index futures also tend to be far more liquid, with tighter spreads and deeper order books, which makes them friendlier for beginners. NIFTY and BANKNIFTY futures see enormous daily turnover, so you can enter and exit quickly without moving the price against yourself. Many illiquid stock futures have wide gaps between the buy and sell quotes, and a careless market order can fill at a poor price.

A quick note on the wider market: index options are also cash settled, weekly index options now exist only for the NIFTY 50 on NSE (BANKNIFTY moved to monthly only from November 2024), and the cash equity market settles on a T plus 1 basis. Futures, by contrast, are monthly instruments that settle a little every day through mark to market and finally on expiry. Keeping these settlement styles straight in your head saves a lot of confusion.

Margin in futures trading: SPAN plus exposure

Margin is the money the exchange asks you to deposit before you can hold a futures position. It is not the cost of the trade and it is not a fee. It is collateral, a good faith deposit that protects the system if your trade moves against you. You get it back when you close the position, adjusted for your profit or loss.

The initial margin on a futures contract has two parts. The first is SPAN margin, where SPAN stands for Standard Portfolio Analysis of Risk. SPAN is a risk model that estimates the worst likely one day loss on your position across a range of price and volatility scenarios, and asks you to keep at least that much. The second part is the exposure margin (also called the additional margin), an extra buffer on top of SPAN to cover unusual moves. Together they form your total initial margin.

For a NIFTY futures lot the total margin is roughly 12 percent of contract value, while a more volatile contract like BANKNIFTY may need around 15 percent. On our earlier example, one NIFTY lot worth ₹15,27,500 needs roughly ₹1.85 lakh of margin, and one BANKNIFTY lot worth ₹15,30,000 needs roughly ₹2.3 lakh. These percentages are not fixed forever: the exchange raises margins when volatility spikes, so the same lot can suddenly demand more cash during turbulent markets.

It helps to see how the two parts split in practice. On a NIFTY lot needing roughly ₹1.85 lakh in total, the SPAN portion might be around ₹1.4 lakh and the exposure portion the rest, though the exact figures move with volatility every day. On top of the initial margin, any running mark to market loss must also be funded, so a losing position quietly demands more cash as the day goes on. And in the expiry week, open stock futures attract a steep delivery margin that is staggered higher each day, which is another reason most traders close or roll well before the last session.

Since SEBI tightened the rules, you must have the full required margin in your account upfront, before the trade. The old habit of taking a large intraday position on a sliver of margin is gone. The exchange checks margins through random snapshots during the day under the peak margin framework, and shortfalls attract penalties. The practical lesson is simple: keep a comfortable buffer above the bare minimum, because margin requirements rise exactly when the market is most stressful.

Mark to market: how daily settlement works

Mark to market, often shortened to MTM, is the daily settlement of profit and loss on your open futures position. At the end of every trading day the exchange takes the day's settlement price (close to the closing price) and compares it with your reference price. The difference, multiplied by your lot size, is either credited to or debited from your trading account that very evening. Your reference price is then reset to that settlement price for the next day.

Take a worked example. Suppose you buy one NIFTY future at 23,500. That evening the contract settles at 23,540. You are up 40 points, so 40 multiplied by 65 equals ₹2,600 is credited to your account, and your new reference price becomes 23,540. The next day the contract settles at 23,470. From 23,540 that is a fall of 70 points, so 70 multiplied by 65 equals ₹4,550 is debited from your account, and your reference resets to 23,470. On the third day you sell to close at 23,560. From 23,470 that is a gain of 90 points, so 90 multiplied by 65 equals ₹5,850 is credited.

Add up the daily flows: plus ₹2,600, minus ₹4,550, plus ₹5,850, which nets to plus ₹3,900. That equals exactly 60 points of gain (23,560 minus 23,500) multiplied by 65. So mark to market does not change your total profit. It simply spreads it across the days you held the trade, settling the running gain or loss every evening instead of waiting until you exit.

There is one more settlement to know about: the final one on expiry day. If you carry an index future all the way to expiry, it is settled in cash against the final settlement price, which is based on a closing average of the underlying index rather than a single tick, to stop any last minute manipulation. From your point of view it works just like another mark to market, only it also closes the contract for good. For a stock future carried to expiry, this final step turns into physical delivery instead of a cash adjustment, as covered earlier.

Why does this matter so much? Because cash actually moves daily. If a string of bad days drains your account below the maintenance margin, your broker issues a margin call, asking you to add funds. If you do not, the broker can square off your position to protect itself. This is how an overnight gap can hurt a futures trader even if the market later recovers: the daily settlement may have already forced you out.

A worked long example on NIFTY futures

Let us walk through a full long trade so the leverage is visible. You expect NIFTY to rise, so you buy one lot of NIFTY futures at 23,500. The contract value is 23,500 multiplied by 65, which is ₹15,27,500. You block roughly ₹1.85 lakh as margin to hold it.

Now imagine NIFTY climbs to 23,800 over the next few sessions, a move of 300 points, and you sell to close. Your profit is 300 multiplied by 65, which is ₹19,500. Notice what just happened: the index moved up only about 1.28 percent, yet on your blocked margin of ₹1.85 lakh that ₹19,500 is a return of roughly 10.5 percent. That magnification is leverage at work.

Leverage is fair, though. It cuts the other way with equal force. If instead NIFTY had fallen 300 points to 23,200, your loss would also be 300 multiplied by 65, which is ₹19,500, again about 10.5 percent of your margin gone on a move of just 1.28 percent in the index. A futures payoff is linear and symmetric: every point in your favour and every point against you is worth the same ₹65 per lot.

This symmetry is the heart of futures risk. There is no premium that caps your loss the way an option buyer enjoys. If the market keeps moving against you, the losses keep growing point by point, settled into your account every evening. That is exactly why position sizing and a predefined stop loss matter more in futures than the direction you guessed.

Going short, and a worked example

One of the most useful features of futures is that you can sell first and buy later. If you believe a market will fall, you can short a future, meaning you sell a contract you do not own. If the price drops, you buy it back cheaper and pocket the difference. This lets traders profit in falling markets and lets investors protect existing holdings, which we cover in the hedging section.

Here is a short trade on BANKNIFTY. You expect weakness in banks, so you sell one BANKNIFTY future at 51,000. The lot is 30, so the contract value is ₹15,30,000 and you block roughly ₹2.3 lakh of margin. If BANKNIFTY falls to 50,300, a drop of 700 points, you buy back to close and earn 700 multiplied by 30, which is ₹21,000.

But if you are wrong and BANKNIFTY rallies to 51,700 instead, a rise of 700 points, you lose 700 multiplied by 30, which is ₹21,000. And here lies a sharper danger of shorting: there is no ceiling on how high a price can go, so a short position has a theoretically large loss if the market keeps climbing against you. A long position can at most lose the contract value if the price falls to zero, but a short can keep bleeding as the price rises.

Because shorts carry this open ended risk, disciplined traders never short without a hard stop loss and a clear plan. Going both ways is a powerful tool, not a free one. The same daily mark to market that credits your account on good days will debit it on bad days, and a sharp gap up overnight can hit a short position before you can react.

Basis, contango and backwardation

The futures price and the spot (cash) price of the same asset are usually not identical. The difference between them is called the basis: basis equals futures price minus spot price. The basis exists because holding a position to a future date has a cost, known as the cost of carry, mainly the interest on the money you would otherwise tie up, less any dividends the underlying pays in the meantime.

When the futures price is above the spot price, the market is said to be in contango. This is the normal state for index futures, because the cost of carry is positive. A simple fair value formula captures the idea: fair futures price equals spot multiplied by (1 plus interest rate times days to expiry divided by 365), minus expected dividends. For instance, with NIFTY spot at 23,450, an interest rate near 7 percent, and 30 days to expiry, the carry is about 23,450 times 0.07 times 30 divided by 365, which is roughly 135 points, giving a fair value near 23,585 before dividends. That is why you often see the future quoting a little above spot.

When the futures price is below the spot price, the market is in backwardation. For an index this can happen just before a large dividend payout, or when near term sentiment is so bearish that traders are willing to sell futures below spot. In commodities, backwardation often reflects strong immediate demand or tight supply, where owning the physical good right now is worth a premium over a future promise.

Traders use the basis in a few practical ways. A calendar spread, for example, means buying one month and selling another at the same time to bet on how the gap between them will change, rather than on market direction, and the exchange charges much less margin for such a hedged pair. A sudden widening of the basis can also flag heavy positioning or an upcoming dividend, while an unusually thin or negative basis can hint at near term nervousness. None of this is a crystal ball, but reading the basis adds a useful layer on top of plain price watching.

Whatever the basis is today, one rule is certain: at expiry the futures price and the spot price must meet, so the basis converges to zero. As the expiry day approaches, the gap shrinks steadily. Traders who understand this convergence use it to judge whether a future is cheap or rich relative to spot, and to plan rollovers.

Rollover near expiry explained

A futures contract dies on its expiry day. So if you hold a view that you want to carry beyond the current month, you must roll your position over to the next month. Rollover simply means closing the near month contract and simultaneously opening the same position in the next month contract, before the near month expires.

Suppose you are long one NIFTY future in the June series at 23,500 and you still expect the market to rise into July. The June contract is near expiry, so you roll: you sell your June future at 23,500 to close it, and at the same time you buy the July future, which is quoting at, say, 23,580. The 80 point gap you pay (23,580 minus 23,500) is your roll cost, which is 80 multiplied by 65, or ₹5,200 per lot. That gap is essentially the cost of carry for one extra month, the same idea as contango.

Analysts watch rollover data closely in the last few sessions before expiry. The rollover percentage is the share of open positions that traders move from the expiring contract to the next one. High rollovers alongside rising prices suggest that longs are confident and carrying their bets forward, often read as bullish. High rollovers with falling prices suggest shorts are rolling their positions, often read as bearish. The roll cost itself signals how expensive it is to stay in the trade.

Rollover is not optional for stock futures if you want to avoid physical delivery. Since stock futures held to expiry are settled by delivery, traders who only want a price view must roll or close before the last day. Plan your rollover a few sessions ahead rather than at the last minute, because liquidity in the expiring contract thins out and spreads widen right at the end.

Hedging versus speculation

Futures serve two very different masters. A speculator uses futures to bet on direction with leverage, hoping to profit from price moves. A hedger uses futures to reduce risk on a position they already hold, accepting a smaller gain in exchange for protection. The same instrument, used with opposite intent.

Here is a hedging example. Suppose you hold a portfolio of large cap shares worth about ₹15 lakh that broadly tracks the NIFTY, and a major event such as the Union Budget or a results season is coming up. You do not want to sell your shares (which would trigger costs and a capital gains event), but you fear a short term fall. You can short one NIFTY future, worth roughly ₹15.3 lakh, to offset the risk. If NIFTY then falls 4 percent, your shares drop about ₹61,000, but your short future gains roughly the same amount (a 4 percent fall is about 940 points, and 940 times 65 is about ₹61,100). The two largely cancel out, so the event passes without damaging your wealth. After the event you buy back the future to remove the hedge and keep your shares.

You can hedge a single stock the same way. If your Reliance shareholding matches the futures lot size, you can short one Reliance future to lock the value ahead of an uncertain announcement. Gains and losses on the shares and the future then offset, freezing your value for the period of the hedge. The cost of a hedge is the margin you block, the small spread you pay, and any carry, which is usually a fair price for peace of mind around a known event.

Speculation is the opposite mindset: you take a futures position without any underlying holding, purely to profit from the move, and you accept the full leverage and the full risk. Neither use is wrong. Hedging is conservative risk management, while speculation is active risk taking. Problems arise when a trader thinks they are hedging but is really speculating with extra steps, or holds a speculative position so large that one bad day endangers the whole account.

The real risks of futures trading

Leverage is the first and biggest risk. Because you control roughly eight times your margin in a NIFTY contract, an adverse move of around 8 percent in the underlying can wipe out your entire margin. The very feature that magnifies gains magnifies losses just as fast, and beginners routinely underestimate how quickly a leveraged position can move against them.

Overnight gap risk is the second. Futures are marked to market daily, but they do not protect you from news that breaks while the market is closed. If a stock or index gaps down sharply at the open on bad global cues or a company announcement, your mark to market debit can exceed your available margin before you ever get a chance to act. A stop loss order helps during trading hours, but it cannot trigger across a gap.

Margin calls and forced square offs are the third. If daily losses pull your balance below the maintenance level, the broker asks you to top up. If you cannot, the broker is entitled to liquidate your position to limit the damage, often at the worst possible moment. Add to this the open ended loss on short positions, the physical settlement obligation on stock futures held to expiry, and the wide spreads in illiquid contracts, and the risk picture is complete.

The defence against all of this is not cleverness, it is discipline. Risk only a small, fixed fraction of your capital on any single trade. Always trade with a predefined stop loss and respect it. Keep a margin buffer well above the minimum so a volatility spike does not force you out. Stick to liquid contracts like NIFTY and BANKNIFTY while you learn. And size positions so that a normal bad day is an inconvenience, never a catastrophe.

Costs and taxes on futures in India

Trading is never free, and in futures the costs are small per trade but add up quickly if you trade often. Brokerage at discount brokers is usually a flat fee per executed order (commonly around ₹20), regardless of the contract value. On top of that the exchange levies transaction charges and SEBI levies a tiny turnover fee.

Securities Transaction Tax (STT) applies to the sell side of a futures trade at 0.02 percent of the traded value (the rate was raised to this level from 1 October 2024). There is also a small stamp duty of about 0.002 percent on the buy side. Critically, Goods and Services Tax (GST) at 18 percent is charged on the brokerage plus the exchange transaction charges plus the SEBI fee. GST is not charged on the STT or on the contract value itself, but it does inflate your service costs. When you tally brokerage, STT, exchange charges, stamp duty, the SEBI fee and 18 percent GST on the chargeable components, the round trip cost on a single NIFTY lot is modest, but a day trader doing many lots feels it.

On income tax, profits and losses from futures and options are treated as non speculative business income, taxed at your applicable slab rate rather than as capital gains. A practical benefit is that F and O losses can be set off against most other heads of income (except salary) and carried forward for up to eight years if you file your return on time. A tax audit may apply once your turnover crosses the prescribed thresholds. Rules and limits change, so treat this as general education and confirm the current position with a qualified chartered accountant.

To make the costs concrete, picture a round trip in one NIFTY lot worth about ₹15.3 lakh. The STT on the sell leg alone, at 0.02 percent, is roughly ₹305, brokerage might be ₹40 for both legs together, and exchange, stamp and SEBI charges plus 18 percent GST add a little more, so the all in cost is usually a few hundred rupees per lot. That is small against the contract value, but if you trade several lots many times a day it becomes a real drag on returns, which is why active traders track costs as carefully as profits.

One common confusion is worth clearing up. The flat 30 percent tax plus 1 percent TDS that you may have heard about applies only to virtual digital assets such as crypto, not to equity or index futures. Futures income follows the business income route described above. Keeping these two regimes separate avoids nasty surprises at filing time.

Common mistakes beginners make

The most damaging mistake is treating the margin as the size of the trade. The margin is only the deposit. Your real exposure is the full contract value, often eight times larger, and your profit or loss is calculated on that full value. Traders who think they have risked only ₹1.85 lakh on a NIFTY lot are stunned when a sharp move costs them a large slice of it in a single day.

Over leveraging is the close cousin of that error. Just because your account can fund three or four lots does not mean it should hold them. Taking the maximum number of lots your margin allows leaves no buffer for the daily mark to market, so an ordinary adverse session can trigger a margin call. Disciplined traders deliberately use far less leverage than the maximum on offer.

Other frequent errors include trading without a stop loss and hoping a losing position will come back, holding stock futures into expiry without a rollover plan and getting caught in physical settlement, chasing illiquid contracts with wide spreads, and ignoring costs and taxes when judging whether a strategy is actually profitable. Each of these is avoidable with a little planning.

Finally, many beginners confuse the risk profiles of futures and options. An option buyer can lose at most the premium paid, but a futures trader faces open ended losses on the wrong side of a big move. If you want a strictly capped loss, an option may suit you better; if you want a clean linear exposure and you can manage the risk, a future does the job. Knowing which tool fits the situation is half the skill.

How to start futures trading the smart way

Knowledge without practice is fragile, so the first step is to rehearse. Open a paper trading account, where you place real trades against live market prices using virtual money, and run your futures ideas there for several weeks. You will feel how margin gets blocked, watch the mark to market credit and debit your virtual balance every evening, and learn the rhythm of rollover near expiry, all without risking a rupee. This is exactly what the First Plan India platform is built for.

When you do graduate to thinking about live trading, start simple. Use index futures such as NIFTY or BANKNIFTY rather than thinly traded stock futures, because they are liquid and cash settled, so you avoid both wide spreads and physical delivery surprises. Trade a single lot until the process feels routine. Define, before you enter, exactly how many points of loss you are willing to take and place a stop loss there. Decide your position size from your risk, not from how much margin you happen to have.

Build a small routine around every trade: write down why you entered, your stop, your target, and your plan for expiry (close or roll). Review your trades weekly and look for repeatable mistakes rather than chasing the next exciting setup. Keep a comfortable cash buffer above the required margin so a volatility spike never forces you out at the worst time. Treat costs and taxes as part of the plan, not an afterthought.

Futures trading rewards patience, sizing and discipline far more than bold predictions. Master the mechanics covered here, the contract and lot size, SPAN plus exposure margin, mark to market, contango and rollover, and the difference between hedging and speculation, and you will understand the instrument better than most people who trade it. Remember that this guide is for education only and is not financial advice. Learn it slowly, practise it on paper, and let the numbers, not the excitement, lead your decisions.

Frequently asked questions

What is futures trading in simple words?

Futures trading means buying or selling a standardised contract that fixes a price today for an asset to be settled on a future date. You put up only a small margin to control a much larger position, and you can profit from both rising and falling markets. In India these contracts trade on the NSE and BSE under SEBI rules, on indices like NIFTY and on individual stocks.

How much money do I need to trade one NIFTY futures lot?

One NIFTY futures lot is 65 units, so at an index level of 23,500 the contract value is about ₹15.3 lakh. The initial margin is roughly 12 percent of that, which is around ₹1.85 lakh, made up of SPAN margin plus exposure margin. Keep extra cash beyond the minimum, because margins rise when the market turns volatile and your position is marked to market daily. The exchange also revises lot sizes periodically, so check the latest NSE circular.

What is the difference between SPAN and exposure margin?

SPAN margin is the core requirement, calculated by a risk model that estimates the worst likely one day loss on your position across many price and volatility scenarios. Exposure margin is an additional buffer the exchange adds on top of SPAN to cover unusual moves. Added together they form the total initial margin you must deposit upfront before taking a futures position.

What is rollover in futures and when should I do it?

Rollover means closing your position in the expiring near month contract and opening the same position in the next month contract, so you can carry your view past expiry. You should roll a few sessions before expiry rather than on the last day, because liquidity in the expiring contract thins out and spreads widen. For stock futures, rolling or closing before expiry also helps you avoid compulsory physical delivery.

Are futures riskier than options?

Futures have a linear, symmetric payoff, so losses can grow without limit on the wrong side of a big move, and a short position has open ended risk if prices keep rising. An option buyer, by contrast, can lose at most the premium paid. Futures are not automatically riskier, but they offer no built in cap on losses, so a stop loss and careful position sizing are essential.

What is mark to market in futures?

Mark to market is the daily settlement of profit and loss on an open futures position. Every evening the exchange compares the day's settlement price with your reference price and credits or debits the difference, multiplied by the lot size, to your account. This means real cash moves each day, and a run of losses can trigger a margin call even before you close the trade.

How are futures profits taxed in India?

Profits from futures and options are treated as non speculative business income and taxed at your applicable income tax slab rate, not as capital gains. Losses can be set off against most other income except salary and carried forward for up to eight years if you file on time. This is different from crypto, which is taxed at a flat 30 percent with 1 percent TDS, so confirm details with a chartered accountant.