13. How is Profit or Loss Calculated in Futures?
What Are Futures Contracts?
A Futures Contract is an agreement to buy or sell an asset at a predetermined price on a future date. Traders use these contracts to:
- Speculate on price movement
- Hedge existing positions
- Gain exposure to indices, commodities, stocks, or currencies
Basic Formula for Calculating Profit or Loss
Profit or Loss = (Exit Price – Entry Price) × Lot Size × Number of Lots
This formula applies whether you're buying first (going long) or selling first (going short) — the only difference is in the trade direction.
Direction Matters: Long vs Short
| Position Type | Action Sequence | Profit When… | Loss When… |
|---|---|---|---|
| Long (Buy 1st) | Buy → Sell | Sell Price > Buy Price | Sell Price < Buy Price |
| Short (Sell 1st) | Sell → Buy Back | Buy Back Price < Sell Price | Buy Back Price > Sell Price |
Example 1: Long Position on Nifty Futures
- Buy Nifty Futures at ₹22,000
- Sell Nifty Futures at ₹22,250
- Lot Size = 50
Profit = (22,250 - 22,000) × 50 = ₹12,500
Example 2: Short Position on Bank Nifty Futures
- Sell Bank Nifty Futures at ₹48,500
- Buy back at ₹48,200
- Lot Size = 15
Profit = (48,500 - 48,200) × 15 = ₹4,500
In short selling, you gain when the market falls.
Example 3: Loss Scenario in Long Position
- Buy Gold Futures at ₹60,000
- Sell at ₹59,500
- Lot Size = 100 grams
Loss = (59,500 - 60,000) × 100 = -₹5,000
Advanced Concept: MTM (Mark-to-Market)
In Futures, profit/loss is not settled only at expiry. Instead, positions are marked to market daily:
- Daily gains are credited to your account
- Daily losses are debited from your account
- Helps manage margin and avoid sudden blow-ups
Example:
- Buy Nifty Futures at ₹22,000
- At end of Day 1 → Price = ₹22,100
- MTM Profit = ₹100 × 50 = ₹5,000 credited to account
Instruments Where This Formula Applies
| Asset Class | Futures Type | Lot Size Example |
|---|---|---|
| Index | Nifty, Bank Nifty | Nifty = 50, Bank Nifty = 15 |
| Stocks | Reliance, Infosys | 300–1500 shares |
| Commodities | Gold, Crude Oil | Gold = 100g, Crude = 100 barrels |
| Currency | USD-INR, EUR-INR | USD-INR = $1000 |
Factors That Influence Final Profit/Loss
| Factor | Description |
|---|---|
| Entry & Exit Prices | Most direct impact |
| Lot Size | Bigger lot = bigger profit/loss per point |
| Number of Lots | More lots = multiplied effect |
| Transaction Costs | Brokerage, GST, stamp duty, SEBI charges |
| Slippage | Difference between expected and actual execution price |
| Leverage | Magnifies both gains and losses |
Key Takeaways
- Formula is simple, but outcomes depend on direction, timing, and discipline.
- Futures trading offers high reward potential, but also higher risk.
- Always account for brokerage and taxes before calculating net profit.