Settlement And Expiry In Futures Trading 

Settlement and expiry are important concepts in futures trading in India. In this article, we will discuss these concepts and how they impact futures trading in the Indian market.

Settlement in Futures Trading in India:

Settlement is the process by which a futures contract is resolved. In India, there are two types of settlements for futures contracts: cash settlement and physical settlement.

Cash Settlement: In a cash-settled futures contract, the buyer and the seller settle their positions in cash rather than through the delivery of the underlying asset. At the time of settlement, the difference between the contract price and the current market price of the underlying asset is calculated, and the buyer or the seller pays the other party the difference.

For example, if a trader buys one Nifty futures contract at a price of Rs. 10,000 and the contract is cash-settled, at the time of settlement, if the market price of Nifty is Rs. 10,500, the trader will receive Rs. 500 as profit. On the other hand, if the market price of Nifty is Rs. 9,500, the trader will have to pay Rs. 500 as loss.

Physical Settlement: In a physically settled futures contract, the buyer and the seller are required to deliver and receive the underlying asset at the time of settlement. For example, if a trader buys one gold futures contract, they are obligated to take delivery of 1 kg of physical gold at the time of settlement.

Expiry in Futures Trading in India:

Expiry is the date on which a futures contract expires. In India, most futures contracts expire on the last Thursday of the month. However, some contracts, such as the Nifty options contracts, expire on the last Thursday of the week.

At the time of expiry, the trader must either close their position or roll it over to the next contract. If the trader does not close their position or roll it over, the contract will be settled in accordance with the rules of the exchange.

Closing a Position: To close a position, the trader must take an opposite position to their existing position in the same contract. For example, if a trader has bought one Nifty futures contract, they must sell one Nifty futures contract to close their position.

Rolling Over a Position: Rolling over a position involves closing the existing contract and entering into a new contract with a later expiry date. For example, if a trader has bought one Nifty futures contract that expires on the last Thursday of the current month, they can sell the current contract and buy a new Nifty futures contract that expires on the last Thursday of the next month.

Conclusion:

Settlement and expiry are important concepts in futures trading in India. Settlement can be either cash-settled or physically settled, while expiry occurs on the last Thursday of the month for most contracts. Traders must either close their position or roll it over at the time of expiry, or the contract will be settled in accordance with the rules of the exchange. Understanding settlement and expiry is crucial for successful futures trading in the Indian market.