Futures Risk

Arjun was sure the NIFTY would go up, so he bought one lot of the NIFTY future at 24,000. He did not borrow on margin in his mind, did not buy options, he just took the future and planned to "hold it like a stock" until he was proved right. The index did not crash. It simply slipped a little each day, and every single evening a few thousand rupees quietly left his account. By the fifth morning his spare cash was gone, his broker squared him off near the low, and the very next week the NIFTY climbed back above his entry price - without him.

A future is the simplest derivative there is. That is exactly what makes it dangerous for a beginner. There is nothing clever to understand, so people skip the one thing they should respect: a future bills you, in cash, every day.

Simple to understand, brutal to hold

A future is an agreement to buy or sell something at a fixed price on a future date. A NIFTY future just tracks the NIFTY index, one lot at a time. One lot is around 65 units (lot sizes are revised periodically by the exchange - always check the current contract specs). So if the NIFTY moves one point, one lot moves by Rs 65.

That is the whole product. No strike to choose, no premium to value, no Greeks. And that simplicity is the trap. Nothing softens the blow when you are wrong. There is no cushion, no floor, no "most you can lose." You own the full move in both directions, every day, until you get out.

Linear profit and loss: every point is real money

This is the first idea to burn in. A future has linear profit and loss. A straight line. Every point the index moves changes your money by the same fixed amount - lot size times points - whether you are up or down.

Compare that with a long option. When you buy an option, you pay a premium, and that premium is the most you can lose. The option's payoff bends: it falls only to the premium and then flattens. That flat part is your cushion. A future has no cushion. The line just keeps going down.

For a NIFTY future, one point is Rs 65 per lot. That number is the whole game. Here is what the same move is worth in cash, and remember it works the same in both directions.

One lot of a NIFTY future at 24,000 controls about Rs 15,60,000 of index (24,000 times 65). Your broker lets you hold it for roughly Rs 1,80,000 to Rs 2,00,000 of margin. That is about eight times leverage. Eight times the exposure means eight times the speed in both directions.

The cash leaves every evening: mark-to-market

Here is the part beginners never see coming. A future is settled in cash every day. This is called mark-to-market, or MTM. At each day's close, the exchange moves the day's gain or loss in actual cash. If you are down for the day, real money leaves your account that evening. If you are up, real money arrives. You do not wait until you exit.

So a losing future is not a quiet paper loss you can ignore. It is a bill that arrives every single evening. And if those debits eat into your account until your balance falls below the margin the exchange requires, your broker will ask you to add funds - or square you off to protect itself. Forced exits usually happen at the worst possible moment, near the low, right before the bounce. That is exactly what happened to Arjun.

Gap and overnight risk

A future carries an overnight gap fully, with no cushion to absorb it. If the index closes at 24,000 and bad news opens it at 23,700 the next morning, that is a 300-point gap, and on one lot that is Rs 19,500 gone before you can do a thing - settled into your MTM that same day. Leverage makes it sharper: the same gap that would be a bruise on stocks you own outright is a serious wound on a future, because you are carrying about eight times the exposure. A stop-loss does not save you here either, because price skips over your stop while the market is shut.

Rollover and basis: two quieter costs

A future expires. A monthly NIFTY future stops existing on its expiry day. If you want to keep the position, you must roll it: close the expiring contract and open the next month's. Rolling is not free - you pay the spread, brokerage and a little slippage every time, and over many months that quietly adds up. Forget to roll, and the position simply closes on expiry whether you wanted it to or not.

Then there is basis risk. The future and the spot index are not the same price. The future usually trades a little above or below spot, and that gap - the basis - moves on its own with interest rates, dividends and demand. You can be right about the index and still see your future lag or lead it for a while. The two only have to meet at expiry, when the basis collapses to zero.

Margin pressure: the bill that grows when it hurts most

Margin is not a fixed number you post once and forget. When markets get volatile, exchanges raise the margin required to hold the same lot. So on the very day the market is swinging hardest against you, the amount you must keep parked can jump - while your MTM losses are draining the account at the same time. Two pressures, one moment. If you were holding the maximum lots your cash allowed, a margin rise alone can force you to add funds fast or cut the position. This is how a "small" futures trade becomes a cash emergency.

Sizing a futures trade

Run this before you take a single lot. This is an educational checklist, not personalised advice.

• Do I know the cash value of one point for my lot count, and what one full bad session (say 100-200 points) would cost me?
• If the index gaps a few percent against me overnight, can I fund that MTM debit in cash the next morning without panic?
• Have I left spare cash well above the margin, so a volatility-driven margin rise does not force me out?
• Do I have a plan to roll before expiry, and have I counted the rollover cost?
• Is the position small enough that the daily MTM swing does not change how I sleep or think?

Futures risk for each type of participant

The same future lands differently depending on who is holding it and why.

The honest takeaway: a future gives you the cleanest, fastest exposure in the market, and asks for the most discipline in return. None of this is a recommendation to trade futures - it is the risk profile to weigh before you do.

When this fails

Even careful futures sizing has limits, and a good mentor says so. A gap can jump straight through the level where you meant to get out, so your planned loss and your actual loss are two different numbers - the gap decides, not your stop. A margin spike on a volatile day can force you to exit at the worst price even when your view eventually proves right; being correct a week later does not help if you were squared off on Tuesday. And leverage means a single oversized lot, held through one bad event, can do damage that years of small wins cannot repair. The realistic goal is not to predict every move. It is to size and fund a futures position so that no single day - not the worst gap, not the steepest margin rise - can end your ability to trade the next one.

Quick self-check