A future contract is an agreement between two parties to buy or sell an asset at a certain time in future at a certain pre decided price. These future contracts are standardized and exchange traded. A future contract may be exercised or offset prior to maturing date. It’s a kind of forward contract which is a derivative type of instrument in which buyer and the seller are agreed to transact financial instrument/Physical commodities for future at a particular price. Nifty Futures is a financial instrument in which futures contracts are done on the basis of S & P Nifty index which is the benchmark of NSE. Nifty stock is a type of market in which trading is done on the basis of the underlying index S&P CNX NIFTY.
Nifty is an index of 50 blue chips companies of NSE (national stock exchange) and represent the performance of these companies. Nifty covers around 60% of the total market capitalization. The lot size of nifty futures is 50 and its multiple thereof. The nifty future has a maximum three month trading cycle-the first one being near month, the second is next month and the far month is third. The settlement day for Nifty future is last Thursday of expiry month or the last trading day if last Thursday happens to be a holiday. The settlement price will be the closing price for the underlying stock for the day and its final settlement price shall be the closing price of the underlying stock on last trading day.
The nifty contracts have two types of settlements, the MTM (Mark to Market) which happens on a continuous basis at the end of each day, and the final settlement which happens on last trading day of the future contract. Mark to market is when asset values are determined according to market prices at the end of each day. All nifty future contracts are mark to market to daily settlement price of the relevant future contract at the end of the each day. The profit and loss for the same are calculated from the difference between the trade price and the day’s settlement price for contracts executed during the day, the buy price and the sale price for the contracts executed during the day and square up.
Nifty is an index and its value is calculated based on the price of shares of 50 companies it represents, and this value is known as the value of nifty. on the basis of this value nifty is traded on exchanges as nifty future contracts, the price here represents the true value of nifty at any given point but there is some premium attached to this price and this premium is known as the nifty future premium, and it’s because of this premium that nifty future is traded at some high price then the spot market, if nifty future is traded at some less price then the spot market then nifty futures is considered to be traded at discount