Futures are standardized financial contracts that obligate the buyer to purchase, and the seller to sell, a specific asset at a predetermined price on a set future date. These contracts are traded on organized exchanges such as the NSE or BSE in India, and are widely used for both hedging and speculative purposes.

The underlying asset in a futures contract can be a commodity (like crude oil, gold, or agricultural products), a financial instrument (such as stock indices, interest rates, or currencies), or even individual stocks. The key feature of futures trading is that the contract value fluctuates daily based on market prices ó a process known as mark-to-market. This ensures that any profit or loss is settled on a daily basis until the contractís expiry.

For investors and traders, futures serve two main purposes. First, they act as a hedging tool for mitigating price risk. For example, a farmer may sell futures to lock in a price for crops before harvest, protecting against a fall in market prices. Second, they provide speculative opportunities ó traders can profit from anticipated price movements without owning the underlying asset. Because futures require only a small initial margin, they offer leverage, amplifying both potential gains and losses.

Each futures contract specifies the contract size, expiry date, and settlement method (cash or physical delivery). Exchanges and clearing corporations ensure transparency, liquidity, and counterparty risk management, making the system robust and secure.

In essence, futures play a vital role in modern financial markets by enabling price discovery, enhancing liquidity, and providing mechanisms for effective risk management. However, participants must understand leverage and volatility risks before trading, in line with SEBIís investor protection guidelines.