How to Trade Futures Contracts: Types, Examples | 2026
How to Trade Futures Contracts: The “Time Machine” of the Market
You want to buy Reliance shares, but you don't have ₹25 Lakhs.
You think Gold will crash next month, but you don't own any gold to sell.
This is where futures contracts come in.
They allow you to trade the future price of an asset today, without owning the asset itself. It is the highest form of leverage and the fastest way to make (or break) a fortune.
Stop reading 50-page PDFs on derivatives.Here is your execution guide on:
- What futures trading is
- Forward contracts meaning
- Types of futures contracts
- Futures contracts examples
- How to trade futures contracts step-by-step
What Is Futures Trading?
Futures trading is the process of buying or selling a standardized contract on an exchange that obligates you to buy or sell an asset at a predetermined price on a future date.
You are not trading the asset itself.
You are trading the price expectation.
If the price moves in your favor → you profit.If the price moves against you → you lose.
That’s what futures trading is in its simplest form.
What Is a Futures Contract? (The "Pizza" Analogy)
Imagine you order a pizza today for a party next Friday.
The Deal:
You agree to pay ₹500 next Friday.
The Risk:
If cheese prices double by Friday, the pizza shop loses (because they still have to sell it to you for ₹500).
If cheese prices crash, you lose (because you are overpaying).
A futures contract is simply an agreement to buy or sell an asset at a fixed price on a future date.
In financial markets:
- The agreement is standardized
- It is traded on an exchange
- The exchange guarantees the settlement
In India, futures contracts are traded on:
You do not know the other party.
You do not need to.
The exchange guarantees the trade.
Forward Contracts Meaning vs Futures Contracts
Let’s clarify the forward contracts meaning in simple language.
A forward contract is a private agreement between two parties to buy or sell an asset at a future date at a price agreed upon today.
It is not traded on an exchange.
It is customizable.
It carries counterparty risk.
Key Differences
In short:
Forward = Private dealFutures = Exchange-backed standardized deal
Types of Futures Contracts
You can trade futures on almost anything that moves.
Here are the main types of futures contracts:
1. Index Futures
Most liquid and widely traded.
Examples:
Index futures allow you to trade the entire market direction without picking individual stocks.
Best for directional traders.
2. Stock Futures
Individual company-based futures contracts.
Examples:
- Reliance Industries
- HDFC Bank
- Tata Motors
You trade the stock's future price instead of buying shares directly.
3. Commodity Futures
Trade physical commodities without owning them.
Examples:
- Gold
- Silver
- Crude Oil
Ideal for traders who want exposure to global commodity cycles.
4. Currency Futures
Used for currency speculation and hedging.
Examples:
Highly popular among traders managing forex exposure.
Futures Contracts Examples (Real-World Breakdown)
Let’s analyze one clear futures contracts example step by step.
Scenario: Reliance Futures Trade
Spot Price of Reliance: ₹2,500Reliance Futures Price: ₹2,510Lot Size: 250 Shares
You think Reliance will go up.
Step 1: Buy 1 Lot of Reliance Futures at ₹2,510
Contract Value:
250 × ₹2,510 = ₹6,27,500
You are controlling ₹6.27 Lakhs worth of stock.
Step 2: Margin Requirement
You don’t pay ₹6 Lakhs.
You pay approximately 20% margin.
Margin Required ≈ ₹1.2 Lakhs
Step 3: Price Moves to ₹2,600
Profit Calculation:
(2,600 − 2,510) × 250 = ₹22,500
You made ₹22,500 on ₹1.2 Lakhs.
This is the power of leverage.
Reverse Scenario (Risk Example)
If price falls to ₹2,450:
(2,450 − 2,510) × 250 = −₹15,000
₹15,000 is deducted from your account immediately via MTM.
This is why futures are dangerous without discipline.
How to Trade Futures Contracts (Execution Checklist)
Do not overcomplicate.
Follow this structured 4-step execution plan.
Step 1: Check the Lot Size
In equity, you can buy 1 share.
In futures, you must buy the full lot.
Example:
- Nifty Lot = Fixed units
- Reliance Lot = Fixed units
Rule:
If you cannot afford the loss on the entire lot, do not trade.
Step 2: Check the Expiry
Futures contracts expire monthly (usually last Thursday).
There are three contracts available:
Near Month – Current month (highest liquidity)Next Month – Following monthFar Month – Third month
Execution Rule:
Always trade Near Month contracts for better liquidity and tighter spreads.
Step 3: Understand MTM (Mark-to-Market)
MTM is the silent killer in futures trading.
Every day:
Profit is credited.Loss is debited.
If your margin falls below requirement → broker closes your position.
Never ignore margin buffer.
Step 4: Entry Direction
Bullish View → Buy Futures (Long)
Bearish View → Sell Futures (Short)
Yes.
You can sell first without owning the asset.
That is why futures are powerful for both bull and bear markets.
Risk Management in Futures Trading
1. Leverage Is a Double-Edged Sword
You control ₹10 Lakhs with ₹2 Lakhs.
The Rule:
Never use 100% of your trading capital for margin.
Keep at least 50% free cash for MTM swings.
2. Ignore Premium and Discount Noise
Sometimes futures trade:
Above Spot (Premium)Below Spot (Discount)
Beginners overanalyze this.
Execution Rule:
Follow price structure and trend.
Premium converges automatically at expiry.
3. Stop Loss Is Mandatory
In stocks, you can hold for years.
In futures, you have expiry.
If stop loss hits → Exit immediately.
Do not hope.
Hope is expensive in futures trading.
Futures vs Options (Clear Comparison)
Futures are simpler but riskier.
Options are flexible but complex.
Can You Hold Futures Forever?
No.
All futures contracts expire monthly.
You must:
Close positionORRoll over (exit current month, enter next month)
For stock futures:
Physical settlement applies.
If you forget expiry, you may be forced to take delivery worth lakhs.
Never ignore expiry.
How Much Capital Do You Need?
Approximate margin requirements:
Index Futures: ₹2–3 Lakhs per lotStock Futures: ₹1.5–5 Lakhs depending on volatility
Always check exchange margin updates.
Why Serious Traders Use Futures
- High liquidity
- Easy short selling
- No time decay (unlike options)
- Direct price movement participation
- Efficient hedging tool
Professional traders prefer futures for directional clarity.
How to Learn Futures Trading the Right Way
Futures trading requires structure.
If you want practical, execution-based trading education instead of theory, trading apps for beginners like Firstock provide real-market access, advanced trading tools, and low brokerage structures suited for derivatives traders.
Many professional traders use Firstock for:
- Competitive futures brokerage
- Margin transparency
- Real-time execution
- Reliable derivatives access
Execution matters more than theory in futures trading.
The Enough Thinking Rule for Futures
Futures trading is fast.
You do not have time to analyze GDP reports.
You need:
Clear biasClear stop lossClear position size
That is it.
Conclusion: Trade Smart. Trade Structured. Trade with the Right Platform.
Futures contracts are the Formula 1 cars of the market.
They are fast. They are leveraged. They demand discipline.
If you:
- Respect position sizing
- Maintain a proper margin buffer
- Use strict stop losses
- Avoid emotional decisions
Futures trading can significantly accelerate your growth as a trader.
If you ignore risk management, leverage will work against you just as fast.
Execution is everything in futures trading.
And execution depends not only on your strategy — but also on the platform you use.
If you're serious about trading futures contracts efficiently, choosing a reliable and cost-effective broker matters. Platforms like Firstock – option trading app offer:
- Competitive brokerage for futures & derivatives
- Real-time order execution
- Transparent margin requirements
- Advanced trading tools for active traders
- Smooth mobile and web trading experience
In leveraged trading, even small brokerage savings and faster execution can make a big difference over time.
So before you place your next futures trade:
Pick your lot. Set your stop. Control your risk. And execute with a trusted platform like Firstock.
Because in futures trading, discipline and the right tools separate professionals from gamblers.
Trade smart.
FAQs
1. What futures trading is in simple terms?
Futures trading is buying or selling a contract today to transact an asset at a fixed price on a future date.
2. What is forward contracts meaning?
A forward contract is a private, customizable agreement between two parties to buy or sell an asset in the future at a pre-agreed price.
3. What are the types of futures contracts?
The main types of futures contracts are:
- Index futures
- Stock futures
- Commodity futures
- Currency futures
4. What are some futures contracts examples?
Examples include:
- Nifty Futures
- Reliance Futures
- Gold Futures
- USDINR Futures
5. Is futures trading risky?
Yes. Due to leverage and daily MTM adjustments, losses can exceed your initial margin if not managed properly.
6. Can beginners trade futures contracts?
Futures trading is not recommended for beginners without risk management knowledge.
7. What happens if I forget expiry?
Index futures are cash-settled.
Stock futures are physically settled.
You may be forced to buy/sell actual shares.
8. How much money do I need to trade futures?
Typically ₹2–3 Lakhs for index futures per lot and ₹1.5–5 Lakhs for stock futures depending on volatility.
9. Are futures better than options?
They are simpler but carry linear risk.
Options offer limited risk (for buyers) but are more complex.
10. Why do professional traders prefer futures?
Because of:
- Liquidity
- Leverage
- No time decay
- Easy short selling
Disclaimer
Investments in securities market are subject to market risks. Read all related documents carefully before investing.
Futures trading involves high leverage and is not suitable for beginners.
