What this unit covers
Understand the gap between a futures price and the spot price (the basis), why traders roll a position over before expiry, and how final settlement works.
By the end you will be able to
- Explain why a futures price and its spot price rarely match, and why that gap narrows toward expiry.
- Describe rollover as a deliberate choice to continue a position, not an automatic process.
- Explain settlement as a scheduled, known event rather than a sudden one.
How it starts: Two Prices, One Stock
- You hold a futures position in a stock trading at 500 rupees.
- Its futures contract shows 520 rupees on that same day.
- Why would two prices for the same stock ever differ?
Words you will meet
- Basis
- The gap between a futures price and the spot price of the same stock.
- Spot price
- The current price of the stock itself on the exchange.
- Futures price
- The price agreed today for a contract that ends on a set future date.
- Settlement
- The scheduled process at expiry that ends a futures contract.
- Convergence
- Futures and spot prices moving closer together as expiry approaches.
In this module: Futures
- Purpose and Mechanics of Futures
- Contract Specifications, Lot Size & Expiry
- Margin and Mark-to-Market
- Basis, Rollover & Settlement (this unit)
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