7. What is Futures Trading? How to Trade in Future Contracts?

What are Futures Contracts?

Futures are termed as contracts mainly because like any other contracts, Future contract has expire date. You have option to hold until expiration or can cancel it at anytime you like. The different commodities have different expiration dates, and can choose according to your objective. There is no limit to the number of contracts to be traded by an individual or an investor. One can trade thousand lakhs contracts at any given time.

For example: Assume you Buy future contract for underlying NIFTY for expiry date 28JAN2016 at the price of Rs.7900 believing that you will make profit on the rise. By the end of January price of NIFTY 28JAN2016 Future Contract reach to Rs.8000 which means upon expiration you have made a profit of Rs.100 per contract. Now if you believe price of the NIFTY will rise till March 2016 then you can opt to buy again a new contract NIFTY which expires on 24MAR2016. This way you can be in the market with the intension of making profit on further rise.

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