Shape your Financial Future with Future Trading

Let’s Understand By An Example

Imagine you are a wheat farmer and you expect a bumper crop at the end of the season. To lock in a price and manage the risk of a potential price drop before you can sell your wheat, you decide to enter into a futures contract. You contact a futures exchange and agree to sell 10 futures contracts, each representing 5,000 lots of wheat, at the current price of ₹ 5 per lot, with a delivery date in 3 months. Each contract is standardized to settle in cash, based on the market price at the expiration date. If the price of wheat rises to ₹6 per lot by the delivery date, you will make a profit because you sold at ₹5 per lot through the futures contract. Conversely, if the price drops to ₹4 per lot, your futures contract ensures you can sell at ₹5 per lot, protecting you from potential losses.