Explore a comprehensive list of FAQs about Futures in the Indian Share Market
| Question | Answer |
| What are Futures Contracts? | Futures contracts are financial agreements that obligate the buyer to purchase or the seller to sell an asset at a predetermined price on a specified future date. |
| Which assets can be traded as Futures in India? | Futures contracts are available for various assets, including stocks, indices, commodities, and currencies, in the Indian market. |
| How are Futures different from Options? | In Futures contracts, both parties are obligated to fulfill the contract, while in Options, the buyer has the choice to exercise or not. |
| What is the minimum lot size for Futures trading? | The minimum lot size for Futures trading is determined by the exchange and varies for different assets. |
| How is the margin calculated for Futures trading? | The margin for Futures trading is calculated based on factors such as volatility, contract size, and market conditions. |
| Can one trade international Futures in India? | While some international Futures are available for trading in India, it’s essential to check with the exchange for specific contracts. |
| What is the significance of the expiry date in Futures contracts? | The expiry date is when a Futures contract matures, and the parties must either settle or roll over the contract. |
| How is the settlement done for Futures contracts? | Settlement for Futures contracts can be either cash-settled or physically settled, depending on the contract specifications. |
| Can one trade overnight in Futures contracts? | Yes, Futures contracts can be held overnight, allowing traders to carry positions beyond the regular trading hours. |
| What is the impact of dividends on Futures contracts? | Unlike stocks, Futures contracts do not receive dividends, and their prices are not directly affected by dividend payouts. |
| Are there restrictions on short selling in Futures? | While short selling is allowed in Futures, it’s subject to market regulations, and exchanges may impose certain restrictions during extreme market conditions. |
| How is the mark-to-market process in Futures trading? | Mark-to-market involves adjusting the margin account daily based on the contract’s closing price, ensuring both parties meet their financial obligations. |
| What is the significance of the open interest in Futures? | Open interest represents the total number of outstanding Futures contracts, providing insights into market participation and potential price trends. |
| Can one hedge using Futures contracts? | Yes, Futures contracts are commonly used for hedging against price fluctuations, allowing market participants to manage risk. |
| How does leverage work in Futures trading? | Futures trading involves leveraging, allowing traders to control a larger position with a relatively smaller upfront margin. |
| What is the role of a margin account in Futures trading? | A margin account is essential in Futures trading to ensure that traders have sufficient funds to cover potential losses and meet margin requirements. |
| Can one trade Futures on foreign stocks in India? | Yes, some exchanges in India offer Futures contracts on select foreign stocks, allowing investors to gain exposure to international markets. |
| What is the difference between near-month and far-month Futures? | Near-month Futures are contracts with closer expiry dates, while far-month Futures have more extended maturity periods, providing flexibility in trading strategies. |
| How does news and events impact Futures prices? | Market news and events can significantly impact Futures prices by influencing investor sentiment, market participants, and overall demand and supply dynamics. |
| Can one modify or cancel a Futures order? | Yes, traders can modify or cancel their Futures orders before they are executed, providing flexibility in adjusting trading strategies. |
| What is the role of the Futures Clearing House? | The Futures Clearing House acts as an intermediary, clearing and settling trades, managing risk, and ensuring the smooth functioning of the Futures market. |
| How is the contract size determined in Futures? | The contract size in Futures is determined by the exchange and represents the quantity of the underlying asset covered by a single contract. |
| Can one trade Futures on individual stocks in India? | Yes, Futures contracts are available for trading on individual stocks in India, providing opportunities to speculate or hedge against price movements. |
| What is the role of the regulatory authority in Futures trading? | Regulatory authorities, such as SEBI in India, oversee and regulate Futures trading to ensure fair practices, transparency, and the protection of investors. |
| How does economic data impact Futures markets? | Economic data releases, such as GDP figures, employment reports, and inflation data, can influence market sentiment and lead to price movements in Futures. |
| Can one convert a Futures position into a physical delivery? | In physically settled Futures contracts, traders have the obligation to take or make physical delivery of the underlying asset upon contract expiration. |
| What is the significance of the rollover in Futures trading? | Rollover involves closing an expiring Futures contract and simultaneously opening a new one with a later expiry, allowing traders to maintain their market exposure. |
| Can one trade Futures on commodities in India? | Yes, Futures contracts on various commodities, including metals, energy, and agricultural products, are available for trading in India. |
| How are dividend-paying stocks treated in Futures trading? | Dividend-paying stocks may experience price adjustments in the Futures market, and traders should be aware of such corporate actions. |
| Can one use technical analysis in Futures trading? | Yes, technical analysis is widely used in Futures trading to analyze historical price data, identify trends, and make informed trading decisions. |
| What is the role of market makers in Futures trading? | Market makers provide liquidity by quoting buy and sell prices for Futures contracts, facilitating smooth trading and reducing bid-ask spreads. |
| How is the futures price related to the spot price? | The futures price is influenced by the spot price of the underlying asset, interest rates, dividends, and the time to expiration, following the principles of cost-of-carry. |
| Can one trade Futures on global indices in India? | Yes, some exchanges in India offer Futures contracts on international indices, allowing investors to participate in global market movements. |
| What is the role of the clearing member in Futures trading? | Clearing members act as intermediaries between traders and the clearinghouse, ensuring the financial integrity of the market and facilitating settlement processes. |
| How does the rollover cost impact trading strategies? | Rollover costs, associated with switching from one Futures contract to another, can impact trading strategies and should be considered by market participants. |
| Can one trade Futures on market indices in India? | Yes, Futures contracts on various market indices, including Nifty 50, Sensex, and sector-specific indices, are available for trading in India. |
| What is the role of the settlement price in Futures trading? | The settlement price is crucial for determining gains or losses in Futures trading and is used to calculate mark-to-market profits or losses. |
| How does interest rate change impact interest rate Futures? | Interest rate Futures are sensitive to changes in interest rates, with prices moving inversely to interest rate movements, providing opportunities for speculation and hedging. |
| Can one trade Futures on currency pairs in India? | Yes, currency Futures contracts allow traders to speculate on the future exchange rates between different currencies, providing opportunities for forex trading. |
| What is the role of the futures market in price discovery? | The futures market plays a crucial role in price discovery by reflecting market participants’ expectations, aggregating information, and establishing fair market prices. |
| How does volatility impact Futures trading strategies? | High volatility can present both opportunities and risks in Futures trading, influencing strategy selection, risk management, and the potential for substantial gains or losses. |
| Can one use algorithmic trading in Futures markets? | Yes, algorithmic trading is commonly used in Futures markets to execute trading strategies automatically based on predefined algorithms and mathematical models. |
| What is the significance of the delivery month in Futures? | The delivery month is the month specified in a Futures contract when physical delivery or cash settlement is expected, marking the end of the contract’s trading period. |
| How is the closing price determined in Futures contracts? | The closing price in Futures contracts is typically the last traded price of the contract on the market before the close of the trading session. |
| Can one trade options on Futures in India? | Yes, options on Futures contracts are available for trading in India, offering additional strategies and flexibility for market participants. |
| What is the role of the options premium in Futures trading? | Options premium represents the cost of the options contract and is a key factor influencing trading decisions and overall strategy in the Futures market. |
| How does global economic events impact currency Futures? | Global economic events, such as central bank decisions and geopolitical developments, can impact currency Futures by influencing exchange rates and market sentiment. |
| Can one trade Futures on interest rates in India? | Yes, interest rate Futures allow traders to speculate on future interest rate movements, providing opportunities for managing interest rate risk and implementing various strategies. |
| What is the role of the expiry day in Futures trading? | The expiry day is the last day of trading for a Futures contract, after which it either settles or expires, and traders need to manage their positions accordingly. |
| How is the settlement price determined for currency Futures? | The settlement price for currency Futures is typically based on a reference rate provided by a recognized financial institution or an exchange-approved methodology. |
| Can one trade Futures on agricultural commodities in India? | Yes, Futures contracts on agricultural commodities, such as wheat, soybeans, and cotton, are available for trading in India. |
| What is the role of the regulatory authority in Futures trading? | Regulatory authorities, such as SEBI in India, oversee and regulate Futures trading to ensure fair practices, transparency, and the protection of investors. |
| How does economic data impact Futures markets? | Economic data releases, such as GDP figures, employment reports, and inflation data, can influence market sentiment and lead to price movements in Futures. |
| Can one convert a Futures position into a physical delivery? | In physically settled Futures contracts, traders have the obligation to take or make physical delivery of the underlying asset upon contract expiration. |
| What is the significance of the rollover in Futures trading? | Rollover involves closing an expiring Futures contract and simultaneously opening a new one with a later expiry, allowing traders to maintain their market exposure. |
| Can one trade Futures on commodities in India? | Yes, Futures contracts on various commodities, including metals, energy, and agricultural products, are available for trading in India. |
| How are dividend-paying stocks treated in Futures trading? | Dividend-paying stocks may experience price adjustments in the Futures market, and traders should be aware of such corporate actions. |
| Can one use technical analysis in Futures trading? | Yes, technical analysis is widely used in Futures trading to analyze historical price data, identify trends, and make informed trading decisions. |
| What is the role of market makers in Futures trading? | Market makers provide liquidity by quoting buy and sell prices for Futures contracts, facilitating smooth trading and reducing bid-ask spreads. |
| How is the futures price related to the spot price? | The futures price is influenced by the spot price of the underlying asset, interest rates, dividends, and the time to expiration, following the principles of cost-of-carry. |
| Can one trade Futures on global indices in India? | Yes, some exchanges in India offer Futures contracts on international indices, allowing investors to participate in global market movements. |
| What is the role of the clearing member in Futures trading? | Clearing members act as intermediaries between traders and the clearinghouse, ensuring the financial integrity of the market and facilitating settlement processes. |
| How does the rollover cost impact trading strategies? | Rollover costs, associated with switching from one Futures contract to another, can impact trading strategies and should be considered by market participants. |
| Can one trade Futures on market indices in India? | Yes, Futures contracts on various market indices, including Nifty 50, Sensex, and sector-specific indices, are available for trading in India. |
| What is the role of the settlement price in Futures trading? | The settlement price is crucial for determining gains or losses in Futures trading and is used to calculate mark-to-market profits or losses. |
| How does interest rate change impact interest rate Futures? | Interest rate Futures are sensitive to changes in interest rates, with prices moving inversely to interest rate movements, providing opportunities for speculation and hedging. |
| Can one trade Futures on currency pairs in India? | Yes, currency Futures contracts allow traders to speculate on the future exchange rates between different currencies, providing opportunities for forex trading. |
| What is the role of the futures market in price discovery? | The futures market plays a crucial role in price discovery by reflecting market participants’ expectations, aggregating information, and establishing fair market prices. |
| How does volatility impact Futures trading strategies? | High volatility can present both opportunities and risks in Futures trading, influencing strategy selection, risk management, and the potential for substantial gains or losses. |
| Can one use algorithmic trading in Futures markets? | Yes, algorithmic trading is commonly used in Futures markets to execute trading strategies automatically based on predefined algorithms and mathematical models. |
| What is the significance of the delivery month in Futures? | The delivery month is the month specified in a Futures contract when physical delivery or cash settlement is expected, marking the end of the contract’s trading period. |
| How is the closing price determined in Futures contracts? | The closing price in Futures contracts is typically the last traded price of the contract on the market before the close of the trading session. |
| Can one trade options on Futures in India? | Yes, options on Futures contracts are available for trading in India, offering additional strategies and flexibility for market participants. |
| What is the role of the options premium in Futures trading? | Options premium represents the cost of the options contract and is a key factor influencing trading decisions and overall strategy in the Futures market. |
| How does global economic events impact currency Futures? | Global economic events, such as central bank decisions and geopolitical developments, can impact currency Futures by influencing exchange rates and market sentiment. |
| Can one trade Futures on interest rates in India? | Yes, interest rate Futures allow traders to speculate on future interest rate movements, providing opportunities for managing interest rate risk and implementing various strategies. |
| What is the role of a futures contract in risk management? | Futures contracts are commonly used for risk management, allowing businesses and investors to hedge against price fluctuations in the underlying assets. |
| Can one trade mini or micro futures contracts in India? | Some exchanges offer mini or micro futures contracts, which represent a fraction of the standard contract size, providing flexibility for retail traders. |
| How does seasonality impact commodity futures trading? | Seasonal factors, such as weather patterns and agricultural cycles, can influence commodity futures prices, impacting trading strategies for these assets. |
| Are there restrictions on the number of futures contracts one can hold? | While there may not be strict limits on the number of contracts, traders need to manage their positions within the margin requirements and exchange regulations. |
| What is the role of the settlement guarantee fund in futures trading? | The settlement guarantee fund helps cover potential defaults, ensuring the smooth functioning and financial integrity of the futures market. |
| Can one trade futures on cryptocurrency in India? | As of my last knowledge update in January 2022, there were discussions about introducing cryptocurrency futures in India, but it’s essential to check the latest regulatory updates. |
| How does market sentiment impact futures prices? | Market sentiment, driven by news, events, and investor perceptions, can significantly impact futures prices, leading to increased volatility and trading opportunities. |
| What is the role of the futures exchange in price discovery? | Futures exchanges provide a platform for buyers and sellers to determine prices through open market transactions, contributing to efficient price discovery. |
| Can one use fundamental analysis in futures trading? | Fundamental analysis, which involves evaluating the underlying factors affecting an asset’s value, can be applied in futures trading to make informed investment decisions. |
| How does geopolitical risk impact futures markets? | Geopolitical events, such as conflicts and geopolitical tensions, can create uncertainty and impact futures markets by influencing investor confidence and market dynamics. |
| Can one trade futures on individual commodities in India? | Yes, individual commodities, such as gold, silver, and crude oil, have dedicated futures contracts in India, allowing traders to participate in specific commodity markets. |
| How does contango and backwardation affect futures trading? | Contango and backwardation refer to the shape of the futures curve and can impact trading strategies, with contango favoring storage and backwardation favoring short-term gains. |
| What are the factors influencing margin requirements in futures trading? | Margin requirements are influenced by factors like volatility, market conditions, and the asset’s liquidity, with exchanges periodically adjusting margin levels. |
| How is the closing price determined when markets experience volatility? | In volatile markets, exchanges may implement mechanisms like price bands to control extreme price movements, impacting the determination of closing prices. |
| Can one trade futures on global commodities in India? | Some exchanges in India offer futures contracts on global commodities, allowing traders to gain exposure to international commodity markets. |
| What is the role of the daily price limit in futures trading? | Daily price limits are imposed by exchanges to prevent excessive price movements, and hitting these limits can temporarily halt trading for specific contracts. |
| How does speculation impact futures markets? | Speculation involves betting on future price movements, and speculators play a vital role in providing liquidity and contributing to efficient price discovery in futures markets. |
| Can one trade futures on renewable energy in India? | Exchanges may introduce futures contracts on renewable energy sources, aligning with evolving market trends and providing opportunities for traders in the green energy sector. |
| How does interest rate risk impact interest rate futures? | Interest rate risk in interest rate futures arises from changes in market interest rates, affecting the value of the contracts and providing opportunities for interest rate hedging. |
| Can one trade futures on market volatility in India? | Volatility futures allow traders to speculate on market volatility levels, providing a unique asset class for those looking to hedge against or capitalize on volatility swings. |
| What role do economic indicators play in futures trading? | Economic indicators, such as unemployment rates and consumer confidence, can impact futures prices by providing insights into the overall health of the economy and influencing market sentiment. |
| Can one trade futures on rare metals in India? | Some exchanges offer futures contracts on rare metals, providing exposure to unique commodities and diversifying trading portfolios. |
| How does weather-related news impact agricultural futures? | Weather-related news, such as reports on droughts or abundant rainfall, can significantly impact agricultural futures by influencing crop yields and affecting supply and demand dynamics. |
| Can one use machine learning in futures trading strategies? | Machine learning techniques, such as predictive modeling and pattern recognition, can be applied in futures trading to analyze large datasets and enhance decision-making processes. |
| What role do corporate earnings play in stock futures trading? | Corporate earnings reports can impact stock futures prices, with positive or negative earnings surprises influencing market sentiment and triggering price movements. |