Equity Futures are financial contracts in which the parties are obligated to buy or sell the underlying at a pre-determined price at the future date. In simple terms, it can also be understood as a contract that facilitates the purchase or sale of an underlies at a fixed price on a future date. For example, if someone buys a May crude oil futures contract (CL), they are saying they will buy 1,000 barrels of oil from the seller at the price they pay for the futures contract, come to the May expiry. The seller is agreeing to sell the buyer the 1,000 barrels of oil at the agreed upon price.

Equity Futures come in with a maximum three-month expiry period with the last Thursday of that particular month being the settlement day. Equity Futures Trading is more dynamic compared to the cash market as it gives you an option to buy as well as short sell. A unique advantage of equity futures trading is that you are allowed to sell stocks without owning them and carry forward the position by taking short-sell positions.

The equity futures market is very vibrant, with indices like Nifty and Bank Nifty being very actively traded. Also, hundreds of stocks are listed on the futures market, which allows participants to trade them. Futures contracts are traded on a futures exchange, like the Chicago Mercantile Exchange (CME) or Intercontinental Exchange (ICE).

Popular index futures contracts include:

Capital Required, and Fees, for Day Trading Futures

To trade, a future’s contracts require the use of a broker. The broker will charge a fee for the trade, called a commission. Day traders want a broker that provides them with low commissions, since they may only be trying to make several ticks on each trade.

Futures are a popular day trading market because traders can access indexes, commodities and/or currencies. Futures move in ticks, with an associated tick value. This tells you how much you stand to make or lose for each increment the price moves. Futures contracts expire, but day traders buy and sell before expiry, never taking actual possession (or having to distribute) the underlying asset. Futures traders pay a commission on each trade they make. Each contract requires a certain amount of margin, which affects the minimum balance required to trade.