NISM-Series-VIII: Equity Derivatives · Introduction to Forwards and Futures

Payoffs for Futures Contracts: Long and Short Positions

Updated 11 October 2026 · Fact-checked

A futures payoff is the profit or loss on a position at a given price of the underlying. For a long position, payoff = (price at close − entry price) × quantity. For a short position, payoff = (entry price − price at close) × quantity. Quantity is lot size × number of lots.

Understand Payoffs for Futures Contracts

A futures contract is an agreement to buy or sell an underlying at a fixed price on a future date. You do not pay the full value up front. You pay margin. But your profit or loss is still based on the full contract value.

If you buy futures, you are long. You gain when the price rises and lose when it falls. If you sell futures, you are short. You gain when the price falls and lose when it rises.

The payoff is linear. Each ₹1 move in the underlying changes your profit or loss by ₹1 per unit. A long futures payoff diagram is a straight line rising from left to right. It crosses zero at the entry price. A short futures payoff diagram is a straight line falling from left to right. It also crosses zero at the entry price.

Because the line is straight, a long position has unlimited profit on the upside and a large but finite loss (if the price falls to zero). A short position has unlimited loss on the upside and a large but finite profit (if the price falls to zero). For a long position, the maximum loss occurs if the price falls to zero, so it is large but finite. For a short position, the loss has no upper limit as the price can keep rising.

The long and short positions in one contract are mirror images. One side's gain is exactly the other side's loss. The total is zero. That is why futures are called a zero-sum game before costs.

Key formulas to remember

Payoff of long futures: (S − F) × quantity; S = price of the underlying (or futures) at close or expiry. F = entry price of the futures. Positive means profit.
Payoff of short futures: (F − S) × quantity; Mirror image of long. You gain when S falls below F.
Quantity: Market lot × number of lots; Always multiply by the full quantity, not by one unit.
Breakeven: Breakeven price = entry price F; For both long and short futures, before any charges. Payoff is zero at S = F.
Long + short on same contract: Long payoff + Short payoff = 0; Gain of one party equals loss of the other.

How to solve Payoffs for Futures Contracts questions

Use this method for any futures payoff question. It works for long, short, one lot or many lots.

1Identify the position. Bought means long. Sold means short.
2Note the entry price F and the closing or expiry price S.
3Find the quantity: lot size × number of lots. If the lot size is not given, use the number the question gives.
4Compute the price difference. Long: S − F. Short: F − S.
5Multiply the difference by the quantity.
6Read the sign. Positive is profit, negative is loss.
7If asked about a diagram, remember: long slopes up, short slopes down, both cross zero at F.
8Check that your answer is in rupees and that you did not use the margin amount.

Quickest way: Direction-then-multiply shortcut

When to use it: Use this for numerical MCQs when time is short and the options differ in sign or size.

Ask only: did the price move up or down from entry?
Up: long profits, short loses. Down: long loses, short profits.
That fixes the sign and removes two options at once.
Then compute |S − F| × quantity once.
Match the size with the remaining options.

Common mistakes in Payoffs for Futures Contracts

Reversing the sign for a short position
Students apply (S − F) to every position out of habit.
Fix: Say it aloud: short gains when price falls. Use (F − S) for short.
Forgetting to multiply by the lot size
The price difference looks like the answer.
Fix: Always write quantity first. Payoff is per unit difference × total units.
Using margin as the investment to calculate profit
Margin is the cash paid, so students think payoff is based on it.
Fix: Payoff depends on the full contract quantity and price move. Margin only decides how much cash you must deposit.
Saying a long futures position has a limited loss like a bought option
Confusing futures with options, where the buyer's loss is limited to the premium.
Fix: Futures have no premium. Losses grow with every adverse move. Only options buyers have loss limited to the premium.
Placing the breakeven away from the entry price
Mixing futures payoff with option payoff, where breakeven includes the premium.
Fix: For futures, breakeven is the entry price. Charges are ignored unless the question says otherwise.

Worked examples

Example 1

A trader buys 2 lots of a stock futures contract at ₹500. Assume an illustrative lot size of 400 shares (actual lot sizes are set by the exchange). At expiry the settlement price is ₹520. What is the profit or loss?

Show the solution

Position: bought, so long.
Quantity = 400 × 2 = 800 shares.
Price difference for long = S − F = 520 − 500 = ₹20.
Payoff = 20 × 800 = ₹16,000.
Sign is positive, so it is a profit.

Answer: Profit of ₹16,000

Example 2

A trader sells 1 lot of index futures at 24,000. Assume an illustrative lot size of 50 (actual lot sizes are set by the exchange). The index futures close at 24,150. What is the payoff?

Show the solution

Position: sold, so short.
Quantity = 50 × 1 = 50 units.
Price difference for short = F − S = 24,000 − 24,150 = −150.
Payoff = −150 × 50 = −₹7,500.
Sign is negative, so it is a loss. The price rose against the short position.

Answer: Loss of ₹7,500

Exam tips

Read whether the question says bought or sold before looking at the prices. Many wrong options are the sign-reversed answer.
Check for the number of lots. Options often include the single-lot answer as a trap.
For diagram questions, find the slope: upward is long, downward is short. Both pass through zero at the entry price.
Negative marking applies in NISM-Series-VIII, so skip a numerical only if you cannot fix even the sign. Usually the direction logic alone removes two options.

Practice questions from Introduction to Forwards and Futures

Payoffs for Futures Contracts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Payoffs for Futures Contracts: frequently asked questions

What is the payoff of a long futures position?

It is (price at close − entry price) × quantity. You profit if the price ends above your entry price and lose if it ends below.

What does the payoff diagram of long futures look like?

It is a straight upward-sloping line that crosses zero at the entry price. Below that price the line is in loss, above it in profit.

Is the loss on a short futures position limited?

No. As the underlying price can keep rising, the loss on a short futures position has no upper limit. The profit is limited only because the price cannot fall below zero.

Does margin affect futures profit or loss?

No. Margin is the deposit needed to hold the position. Profit or loss is based on the full contract quantity and the price move.