Index Futures

Index Futures is a futures contract used to buy or sell a stock market index at a certain price on an agreed date in the future. Stock index futures are used for hedging, trading, investing and are also used as market sentiment indicators.

Mostly, index futures contracts are settled in cash: Suppose you sold one Nifty futures contract, then at the time of expiry you will need to deliver the Nifty, i.e., its 50 stocks based on their weight in the index. The delivery of all 50 stocks based on their weight is a cumbersome process, so to avoid all this index future is settled in cash. If your position in the index futures turns profitable, then you will receive the profit equivalent in cash and if it makes a loss, then you pay the loss in cash.