What is Futures Trading? Meaning, Types, and More


Futures trading is a category of derivative trading that occurs in the derivatives segment of the stock market. It involves investors speculating on the future price of stocks, currencies, commodities, or benchmarks. Derivatives, which are financial contracts, derive their value from the price movements of an underlying asset on the Algo trading app. In 2021, the overall future trading has increased by 33.7% than the previous year. It has reached a total of 62.58 billion contracts. The number of futures trading contracts each day has increased up to 14.6% growth, which means 29.28 billion contracts per day.

Understanding The Meaning Of Futures Trading 

Futures trading refers to a financial agreement where individuals or companies agree to buy or sell a specific asset at a predetermined date and price. This asset includes several products such as commodities, stocks, ETFs, or other financial instruments. In this type of trading, one party agrees to purchase a specific quantity of a commodity while the other party agrees to sell the contract at a specific price with a mutual agreement. 

The futures contract market and Algo trading software are used by traders, investors, and multiple businesses to control the supply chain and make it available for their production needs. In 2013, the number of futures contracts traded worldwide was 12.13 billion, which has now increased substantially by 29.32 billion future contracts traded in 2023.

Different Types of Futures Trading

There is a wide variety of financial and commodity futures available for future trading on Algo trading app. In other words, derivatives track the price of another asset, and investors use futures and options trading to try and make a profit from these price movements It includes indices, currencies, debt, energy, metals, and agricultural products. Here are the types of future trading options mentioned, which can help the traders select according to their requirements:
  1. Currency Future Trading: This specific futures trading allows risk managers and speculators to trade one currency for another currency at a predetermined date in the future within the fixed exchange rate.
  2. Stock Future Trading: This type of future trading is centered around specific stocks, and it is necessary to deposit an initial margin with the broker before stock future trading. In this type of trading through the Options trading app, the profit potential increases with higher transaction volumes, but it has integrated risks. Additionally, stock future trading is limited to certain equities listed on stock exchanges like the BSE and NSE.
  3. Commodity Future Trading: Hedging against potential fluctuations in the future prices of various items is made possible through commodity futures, such as gold, silver, and petroleum. This type of futures trading contract is useful for speculating the price movements. Commodity futures trading is available with low early investment required in commodities where traders can place large wagers. Thus, it has huge profit potential with associated risks.
  4. Index Future Trading: Index futures trading is the method for guessing the potential changes in indexes like the Sensex and Nifty. In this type of trading, the decrease in stock prices, portfolio managers use these futures to protect their investments in equities.
  5. Interest Future Trading: Interest future trading is a type of trading where a predetermined price on a specified date is provided through a contract. The primary assets in this agreement are government bonds or Treasury bills which work with Algo trading partner program. These aspects are available for trading on the NSE and BSE stock exchanges.

How Does Futures Trading Actually Work?

In the futures market, traders can buy or sell contracts for the future purchase or sale of specific commodities or financial instruments at a predetermined price and date. These contracts are traded on organized exchanges like MCX and ICE through Algo trading software. When a trader purchases a futures contract, they are essentially purchasing the right to buy a specific commodity or financial instrument at a fixed price in the future. 

Conversely, when a trader sells a futures contract, they are collecting the right to sell a commodity or financial instrument at a fixed price in the future. The price of futures contracts is according to the market supply and demand.

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Benefits Of Futures Trading That Investors Must Know

Futures trading refers to the trading of futures contracts in which two parties agree to make a transaction, including securities or commodities, at a predetermined price. As a result, futures trading contracts are based on specific speculation. Investors can get several advantages with futures trading. Some of these advantages include:
  • High Flexibility: Futures contracts can be easily traded because they come with fixed terms and expiration dates. The Options strategy builder allows participants to modify their trading strategies according to their individual needs by choosing from a range of future contract sizes and maturities.
  • Hedging: Futures trading allows individuals to protect themselves against unpredictable price variations by providing a way to mitigate potential financial losses using futures contracts. For example, if an investor has 300 shares of a company's stock in the spot market. However, it has concerns about a possible upcoming decrease in the stock's value. To relieve this risk, they can sell futures contracts as insurance to protect their spot market position.
  • High Liquidity: The futures markets in India, including the National Stock Exchange (NSE) and Multi Commodity Exchange (MCX), have a high level of liquidity. Thus, it has many participants with substantial trading volumes. Thus, traders on Options strategy builder can enter or exit with specific positions without affecting the significant price fluctuations.
  • Low Execution Cost: Future trading is available at very low execution prices. The Futures prices are determined by the current spot price with adjustments for the risk-free rate of return. It is valid till the contract expiry and according to the cost of storing the physical commodities for the buyer.
Thus, selecting futures trading has the possibility of risks and losses. However, suppose you experience a substantial loss with only a minimal chance of investment recovery. In that case, you can exit your current position and accept a minimal loss on the financial portfolio.

  • No Time Decay: Futures market trading occurs at specific times each day. It allows traders to determine whether stock prices will increase or decrease. Therefore, this type of trading is efficient and does not result in any time loss through the Algo trading partner program. For example, stock index futures can serve as an indicator of the overall stock market situation.


Investors select futures trading on both the NSE and BSE platforms. Thus, selecting a suitable strategy for trading futures is important as it depends on market knowledge and research on the Algo trading app. Futures in the stock market include the contract to exchange equity at a specific future price and speculating the market fluctuations.

Many traders and investors select money investment to maximize profit and gain leverage rather than simply keeping securities directly from the stock market. Future trading relates to an increase in the price benefits the buyer, and a slight decrease benefits the seller. The market condition has a direct connection with futures contracts. In addition, futures trading provides the opportunity to trade ETFs, bonds, and government securities.

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What is Futures Trading? Meaning, Types, and More
Nisarg S 6 November, 2023
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