9. What are the Common Underlying Assets in Futures Trading?
In futures trading, the underlying asset is the financial instrument or commodity on which the futures contract is based. The value of the futures contract moves in tandem with the price of this asset.
These assets can belong to various asset classes, each offering unique characteristics, risk-reward profiles, and trading strategies.
Futures exist on:
Equities (Stocks)
Stock Market Indices
Commodities
Currencies (Forex)
1. Equity Futures (Stock Futures)
These futures are based on individual company shares.
Examples: Reliance Industries, Infosys, HDFC Bank, ITC, TCS
Key Features:
Speculating on the future price of a stock
Trade in bulk (lot size) without paying full price upfront
Physically settled in India (you receive/deliver stock if not squared off)
Use cases: Hedging, speculative trading, arbitrage
Lot Size Example:
Reliance Lot = 250 shares
If price = ₹2,500 → Contract value = ₹6,25,000
2. Index Futures
Contracts based on stock market indices (group of companies).
Popular Examples: Nifty 50, Bank Nifty, Nifty IT, Sensex
Key Features:
Cash-settled (no physical delivery)
High liquidity, low impact cost
Use cases: Portfolio hedging, index trading, volatility strategies
3. Commodity Futures
Based on physical goods, traded on commodity exchanges like MCX/NCDEX.
Examples:
Metals: Gold, Silver, Copper
Energy: Crude Oil, Natural Gas
Agri: Cotton, Soybean, Jeera
Key Features:
Often physically settled
Used by producers/manufacturers to hedge costs
Prices influenced by demand-supply, seasonality, geopolitics, weather
Example:
Gold Mini Futures Lot = 100 grams
If gold = ₹6,000/gm → Contract = ₹6,00,000
4. Currency Futures (Forex Futures)
Based on the exchange rate between two currencies. Traded on NSE, BSE, MCX-SX.
Examples: USDINR, EURINR, GBPINR, JPYINR
Key Features:
Cash-settled
Standardized lot sizes (e.g., USDINR = $1,000 per lot)
Use cases: Import/export hedging, forex speculation, business risk management
Example:
USDINR Futures at ₹83, Lot Size = 1,000
Contract Value = ₹83,000
Margin ≈ ₹2,500 (3%)
Comparative Snapshot
Asset Class
Examples
Exchange
Settlement
Use Case
Stock Futures
Reliance, TCS, Infosys
NSE, BSE
Physical
Trading, Hedging, Arbitrage
Index Futures
Nifty 50, Bank Nifty
NSE, BSE
Cash
Trend Trading, Hedging
Commodity Futures
Gold, Crude, Wheat
MCX, NCDEX
Physical/Cash
Hedging, Speculation
Currency Futures
USDINR, EURINR
NSE, BSE
Cash
Forex Hedging, Speculation
Real-Life Use Case Examples
A jewellery exporter uses Gold Futures to hedge against gold price fluctuations.
A trader uses Bank Nifty Futures to profit from bullish momentum in banking.
An importer hedges INR depreciation using USDINR Futures.
An investor uses Stock Futures to leverage on expected earnings growth.
Key Takeaways
Futures exist on multiple asset classes: equity, index, commodity, currency
Each asset has distinct trading and hedging benefits
Equity & Index futures suit active market participants