WealthJot.ai

The Futures Payoff

beginner6 min read

Straight-line profit and loss in both directions — and why that symmetry cuts both ways.

A “payoff diagram” plots your profit or loss against the underlying’s price. For futures it’s the simplest diagram in all of derivativesA contract whose value is derived from an underlying asset.: a straight diagonal line. Every point the underlying moves translates one-for-one into your P&LA record of revenue, costs and profit over a period..

The futures payoff is a straight line through your entry price — and that linearity is the whole story. It means your profit and lossA record of revenue, costs and profit over a period. are perfectly symmetric: a 100-point move up makes exactly what a 100-point move down loses. There’s no cushion, no cap — the upside is large and the downside is equally large (theoretically unlimited for a short). This is the key contrast with optionsThe right, not the obligation, to buy or sell at a set price., whose payoffs bend (a buyer’s loss is capped, a seller’s is not). With futures, what you can win, you can equally lose. The symmetry that makes them simple is exactly what makes them unforgiving.
ExampleLong a futureA binding agreement to buy or sell at a set price on a future date. at 22,000 with lot sizeThe fixed quantity per derivatives contract. 50: at 22,300 you’re +300 × 50 = +₹15,000; at 21,700 you’re −300 × 50 = −₹15,000. The exact same distance produces the exact same magnitude — just opposite sign. That’s the straight-line, symmetric payoff in numbers.
Key takeawayA futures payoff is a straight line through your entry — profit and lossA record of revenue, costs and profit over a period. are symmetric and point-for-point, with no cap on either side. The simplicity (linearity) is also the danger: what you can win, you can equally lose, unlike the bent payoffs of optionsThe right, not the obligation, to buy or sell at a set price..
FAQs
Why is a short future’s loss called “unlimited”?

Because a stock’s price can rise indefinitely, a short future (which loses as price rises) has no theoretical ceiling on its loss. A long future’s loss is bounded only by the price falling to zero. In practice, daily mark-to-market and stops cap real losses — but the *theoretical* downside symmetry is why futures demand strict risk control.