The Sabzi Mandi Analogy
Imagine a vegetable wholesaler who agrees today with a farmer: "I will buy 100kg of onions from you next month at ₹25/kg, regardless of what the market price is then." Neither side hands over cash or onions today — they've simply made a contract about a future deal. This is the essence of a derivative: its value is derived from an underlying asset (onions), but the deal itself is settled later.
In NSE markets, the "onions" are stocks or indices (NIFTY, BANKNIFTY, RELIANCE), and the "future price" is locked in through a Futures contract.
What Is a Futures Contract?
A futures contract is a standardized, exchange-traded agreement to buy or sell a fixed quantity of an underlying asset at a fixed price, on a fixed future date (expiry, typically the last Thursday of the month for monthly contracts on NSE).