What is Derivatives contract

Anil buys a futures contract in the scrip "Reliance Ind". He will make a profit of Rs.1500 if the price of Satyam Computers rises by Rs 1500. If the price remains unchanged Anil will receive nothing.

If the stock price of Satyam Computers falls by Rs 2400 he will lose Rs 2400.

As we can see, the above contract depends upon the price of the Reliance Ind scrip, which is the underlying security. Similarly, futures trading can be done on the indices also.

Nifty futures are a very commonly traded derivatives contract in the stock markets.

The underlying security in the case of a Nifty Futures contract would be the Index-Nifty.