Why the future is not the spot price
If NIFTY is at 23,650 today, why would its one-month future trade at, say, 23,760? Because holding the future instead of the underlying saves you money: you don't have to tie up ₹15 lakh buying 65 units of the index. That saved capital earns interest. So the fair future price is spot plus the cost of carry — the interest on the money you didn't spend — minus any dividends you forgo:
F = S × (1 + r × t) − dividends where r is the risk-free rate and t the time to expiry in years.
At 6.5% for one month on 23,650 that is roughly 23,650 × 0.065 / 12 ≈ 128 points. If the future trades more than that above spot, the market is paying to be long — mild bullishness, or a squeeze. If it trades below fair value, or even below spot (“backwardation”), someone is paying to be short: hedgers dumping futures, dividend season, or fear.
Fair one-month futures premium at 6.5%: spot × 0.065 / 12. For NIFTY that is about 0.54% above spot — roughly 128 points at 23,650. Compare it with the actual futures quote on your broker: the gap between the two is the basis.
Basis and what it tells you
Basis = futures price − spot. It converges to zero at expiry (the future settles at the spot value), so it shrinks a little every day. A basis wider than fair value means demand to be long; narrower means demand to be short. Traders watch the basis on BANKNIFTY and on individual stocks around results: a stock future flipping to a discount before earnings is a tell that large holders are hedging.
Margin: how much a lot really costs
A NIFTY futures lot at 23,650 controls about ₹15.4 lakh of index. You do not pay that. You post SPAN + exposure margin, typically 12–15% of contract value for an index (higher for volatile stocks), so roughly ₹1.9–2.3 lakh per lot. That is your leverage: a 1% move in NIFTY (236 points × 65 = ₹15,340) is about 7% of your margin. A 3% down day — they happen a few times a year — is a fifth of your capital gone in a session.
Mark-to-market: settling every night
Suppose you buy one NIFTY future at 23,700 on Monday. Monday's close is 23,760: ₹60 × 65 = ₹3,900 is credited to your account that night. Tuesday closes at 23,640: ₹120 × 65 = ₹7,800 is debited. You never see a single “final” P&L; it arrives in daily pieces, and if the debits drain your margin below the maintenance level you get a margin call — top up or be squared off. Futures P&L is brutally linear: every point is ₹65, up or down, forever, until you exit.
A complete one-lot example
| Day | Close | Change | MTM (× 65) | Running P&L |
|---|---|---|---|---|
| Mon (buy 23,700) | 23,760 | +60 | +₹3,900 | +₹3,900 |
| Tue | 23,640 | −120 | −₹7,800 | −₹3,900 |
| Wed | 23,900 | +260 | +₹16,900 | +₹13,000 |
| Thu (sell 23,880) | — | −20 | −₹1,300 | +₹11,700 |
Total: (23,880 − 23,700) × 65 = ₹11,700, before brokerage, STT (on the sell side), exchange charges and GST — which for a round trip on one lot come to a few hundred rupees.
When futures are the right tool
Futures are the cleanest way to express a directional view with no time decay and no volatility exposure: you are right if price goes your way, full stop. They are the wrong tool when you want limited risk, when you expect a range rather than a trend, or when you have a view on volatility rather than direction. For those, you need options — next chapter.