EXPERTM43

Futures, Hedging, and Roll Yield

Learn how futures work, how to hedge exposure, and why roll yield matters for commodity and index futures in India.

Learning Goals

  • Understand futures contracts, margins, and settlement.
  • Learn how to hedge equity and currency exposures.
  • Understand roll yield and its impact on futures returns.

Core Concepts

Futures Mechanics
Beginner

A futures contract obligates delivery at a future date. Most investors close positions before expiry and use margin instead of paying full value.

Hedging
Beginner

Use futures to hedge an underlying exposure, such as a stock portfolio or currency risk, by taking an offsetting position.

Roll Yield
Beginner

When futures are in contango, rolling contracts can incur negative yield; in backwardation, rolling can add return.

Indian Market Context

Nifty, Bank Nifty, and crude oil futures are popular hedging instruments in India. Retail traders must understand margin and expiry risks.

Hands-On Calculators

Future Value Calculator
Future Value₹3,10,585

Gain: ₹2,10,585

Behavioral Insight

🧠 LEVERAGE ILLUSION: Futures appear low-margin, but small price moves can create large gains or losses.

From History

Futures, Hedging, and Roll Yield

The 2013 taper tantrum saw futures-based hedges help protect portfolios from a sharp domestic selloff.

Take the Quiz

Module Quiz
A futures contract requires:
Rolling futures in contango can reduce returns.
A hedge using futures is intended to: