Futures and Derivatives

The course starts before futures, with the plain idea a future is built from. Understand the forward handshake and the two problems it has, and the futures contract stops looking like jargon and starts looking like an obvious fix.

• 1Value borrowed from something elseA derivative is a contract whose value comes from an underlying asset. People use derivatives to hedge risk, to speculate, and to help set prices. 8 min
• 2Locking a price today for laterA forward is a private agreement to buy or sell something at a fixed price on a future date. It is the original derivative, and its flaws are the reason futures exist. 8 min
• 3What the exchange fixesA future is a forward made safe and tradeable, with standard terms, an exchange to trade on, and a clearing corporation that guarantees both sides so neither can default. 8 min

With the idea in place, this part looks at the contract itself: how to read one, the two directions you can take it, and the shape of its payoff, which is the cleanest in all of derivatives and the most unforgiving.

• 4Reading a futures contractEvery futures contract is set by four things, its underlying, its lot size, its contract value, and its expiry. Learn to read one, using NIFTY and a single stock, with India's current contract sizes. 8 min
• 5Betting up, and betting downYou go long a future to profit if the price rises, and short it to profit if it falls. A future lets you sell first and buy back later as easily as the other way round, which owning shares does not. 8 min
• 6A straight line, both waysA future's payoff is a straight line, you gain or lose one for one with the underlying, without limit in either direction, and with no premium and no time decay. 8 min

This is the heart of the course and the part where beginners are made or broken. Three linked mechanics, leverage, margin, and daily mark-to-market, decide how a future actually behaves in your account, and none of them appears on the payoff diagram.

• 7Controlling a lot with a littleA future lets you control a large contract value while putting up only a small margin. That leverage magnifies both gains and losses, and it is the single biggest reason beginners lose money in futures. 8 min
• 8The deposit the exchange demandsTo hold a future you post an initial margin, made of SPAN margin, a risk-based core, plus an exposure margin, an added buffer. It is not a cost you pay, it is a deposit against a bad day. 8 min
• 9Settled every single dayA future is settled to the market every day. Each evening the day's profit is credited to your account or the day's loss is debited from it, so gains and losses are real cash daily, not paper until expiry. 8 min
• 10When the deposit runs lowIf daily losses eat into your margin, the broker asks you to top it up, a margin call, and if you do not, your position is squared off, often at the worst moment. Understand it before it happens to you. 8 min

Why does a future not trade at exactly the spot price, and what happens when it ends? This part answers both, and it carries the physical-delivery rule that catches so many beginners off guard.

• 11Why the future costs a bit more than spotA future's fair price is the spot price plus the cost of carry, the interest to fund the position minus the dividends you give up. This is why an index future usually trades a little above spot. 8 min
• 12The gap between future and spotThe basis is the gap between spot and futures. When the future trades above spot it is called contango, and below it, backwardation. Learn to read the gap and what it can hint at. 7 min
• 13How a contract endsFutures expire monthly. Index futures settle in cash at a closing average, while single-stock futures settle by physical delivery of the actual shares, which can surprise a beginner who holds one to expiry. 8 min
• 14Carrying a position to the next monthTo keep a futures view past expiry you roll, closing the expiring contract and opening the next month's. Rolling is a routine move, and the amount of rolling the whole market does is itself a signal. 7 min

Beyond a plain directional bet, futures do real jobs. This part covers reading positioning through open interest, the honest original purpose of hedging, a gentler spread trade, the wider family of futures, and how a future stacks up against an option.

• 15Counting the open contractsOpen interest is the number of futures contracts currently open. Read alongside price, it hints at whether a move is backed by fresh money or is just old positions closing. 8 min
• 16The honest purpose of futuresThe original reason futures exist is to hedge, to protect something you hold against a fall by taking an offsetting short. This chapter shows how, including hedging a whole portfolio with index futures. 9 min
• 17Trading the gap, not the directionA calendar spread buys one expiry and sells another, betting on the gap between them rather than on the market's direction. It is a lower-risk use of futures, with its own margin treatment in India. 7 min
• 18Index, stock, currency, and commodityFutures trade on more than shares. Index and single-stock futures differ mainly in how they settle, and there are also currency futures like USDINR and commodity futures like gold and crude oil. 7 min
• 19Choosing between the two derivativesA future and an option can express the same view, but very differently. The future is linear with no decay yet unlimited risk, while a bought option caps the buyer's loss but bleeds time value. Learn when each fits. 8 min

The course closes on the danger it opened with, made concrete. Leverage is wonderful in a backtest and brutal in a live account, and this part names exactly how it hurts people and how to stay standing, before handing off to the practice sandbox.

• 20How futures traders blow upThe leverage that magnifies a gain magnifies a loss just as fast, and daily settlement turns that loss into real cash the same evening. Overnight gaps and margin calls are how leveraged accounts get wiped out. 8 min
• 21The traps to avoidMost futures losses come from a short list of avoidable mistakes, too much leverage, no stop, averaging a loser, ignoring the margin, and holding a single-stock future into physical delivery. 8 min
• 22A checklist, then the sandboxA short pre-trade checklist pulls the course together, and then you rehearse a futures trade in Niota's practice sandbox before risking real money, and point on to risk and psychology. 7 min