What It Means
A futures contract is a standardized agreement to buy or sell an underlying asset — a stock, index, or commodity — at a predetermined price on a specific future date. Unlike an option, a futures contract carries an obligation, not a choice: both sides must honor it at expiry unless the position is closed earlier.
How It Works
Futures trade on margin, meaning you put up a fraction of the contract's total value upfront rather than paying the full amount. That's what makes futures leveraged — a small move in the underlying translates into a much larger percentage move in your margin, in either direction. Positions are marked to market daily, so gains and losses are settled into or out of your account every day the contract is open, not just at expiry.
Example
One lot of Nifty futures might require a margin of roughly ₹1.5-2 lakh (this changes with exchange-set margin rules and the current lot size — check the live figure) to control a position worth several times that in notional value. If Nifty rises 100 points, the futures position gains proportionally to the full lot size, not just the margin put up — which is exactly why a losing move can also wipe out a large share of that margin quickly.