What Are Futures? A Beginner-Friendly Guide
A futures contract is an agreement to buy or sell something at a price agreed today, but with the actual exchange happening on a set future date. It's a type of derivative.
A plain example
Say a stock trades at ₹100 today. You buy a one-month futures contract at ₹100. If the stock is ₹120 a month later, you still get to "buy" at ₹100 — a ₹20 gain per share. If it drops to ₹80, you're obliged to buy at ₹100 — a ₹20 loss. You committed to the price in advance, for better or worse.
The key feature: obligation
The crucial word is obligation. Unlike options, both sides of a futures contract must honour it at expiry. That makes futures simpler but also riskier — there's no walking away.
Leverage and risk
You don't pay the full value upfront — just a margin (a deposit). That means a small amount of money controls a large position, so gains and losses are both magnified. This leverage is why futures can be dangerous for beginners. They're used to hedge or speculate on stocks, indices, and commodities.