Index, stock, currency, and commodity

Almost every example in this course has used NIFTY or a single stock, but a future can be written on many kinds of underlying. The mechanics you have learned, leverage, margin, daily settlement, cost of carry, expiry, do not change from one to the next; only the underlying and the way it settles do. This short chapter surveys the range, so that when you see a USDINR future or a gold future you recognise it for what it is: the same instrument you already understand, on a different thing.

Index and single-stock futures

You have met both of the equity kinds already, and the practical difference between them is settlement, which the expiry chapter covered.

Index futures, on NIFTY, Bank Nifty, and a few others, are cash-settled. They are the most heavily traded futures in the country, so they are deeply liquid with tight spreads, and because nothing is ever delivered, you can hold them to expiry without a second thought. This combination of liquidity and clean settlement is why they are the natural starting point.

Single-stock futures, on individual companies like Reliance or Infosys, are physically settled: held to expiry, they deliver the actual shares, with the full-contract-value obligation you were warned about. They are generally less liquid than index futures, their liquidity varies a lot from one stock to the next, and they carry the extra wrinkle of the market-wide position limit and the F&O ban. All of this makes them a step more demanding than index futures, and a reason beginners are steered to the index first.

Currency futures

Futures also trade on exchange rates. In India the main currency futures are on the rupee against major currencies, above all the US dollar, the USDINR contract, along with the euro, the pound, and the yen against the rupee. They trade in the currency segment of the NSE and BSE, in smaller contract sizes than equity futures, and are cash-settled.

Their natural users are businesses with currency risk: an importer who must pay in dollars in three months, or an exporter who will receive dollars, can lock the rate with a currency future and remove the uncertainty, exactly the hedging logic of the last chapter applied to exchange rates. Traders also use them to speculate on the rupee. The mechanics are the same as any future, but currency prices march to their own drummers, global interest rates, trade flows, and central-bank action, so they are a distinct study rather than a simpler one.

Commodity futures

Finally, futures trade on physical commodities. In India these trade mainly on the Multi Commodity Exchange, the MCX, and include gold, silver, crude oil, natural gas, and a range of agricultural goods, with some agricultural contracts on other exchanges. Depending on the contract, they may be cash-settled or settled by physical delivery of the commodity.

Their original users are the people who deal in the physical goods: a jeweller hedging the gold they will need, a refiner hedging crude, a farmer hedging a harvest, the direct descendants of the potato farmer from Chapter 2. Speculators trade them too, on views about global supply and demand. Commodities regulation in India moved under the same regulator as securities in 2015, so a commodity future sits under the familiar framework, but commodity prices are driven by global cycles, weather, and geopolitics, which makes them their own world to learn.

Why start with the index

The survey points to one practical conclusion for a beginner. Of all these, index futures are the friendliest place to start: they are the most liquid, so you can enter and exit cleanly; they are cash-settled, so there is no delivery to manage; they are the best understood and most widely written-about; and the learning and practice tools are built around them. Currency and commodity futures are not harder to trade mechanically, but each brings its own drivers and quirks, so they are best treated as further study once the core, learned on the index, is solid.

What to carry forward

A future can be written on an index, a single stock, a currency, or a commodity, and the instrument is the same in every case, only the underlying and the settlement change. Index futures are cash-settled and the most liquid; single-stock futures deliver shares; currency futures like USDINR let businesses lock exchange rates; commodity futures on the MCX serve producers, consumers, and speculators alike. Because everything you learned about leverage, margin, settlement, and carry carries across, understanding index futures lets you read them all, which is exactly why beginners start there. The last chapter of this part sets a future against its close cousin, the option, so you can choose between the two families for a given view.