Futures & Option is a comparatively new system of trading. There are chances of huge profits & losses because it is trading in lot (huge scale).
There are different types of futures-
Index future-
few index futures are there. nifty & bank nifty future are most popular index futures.
We can trade in international indices as well.
Stock futures-
There are many stock futures. It started with 18 futures and 500-600futures are traded now a days.
Lot sizes are fixed by exchanges in such a manner that value of each future remains within 4 to 6lacs.
So if stock price is Rs.20/- then lot size may be around 25000, so value will be 5lac. If stock price is 4000 then lot size may be around 150, so value is 6lacs. We can buy any future by paying 10-20% margin money & hold
the position till expiry.
Why were futures needed?
The main reason was the limitation of total quantity of any particular stock. So if there would have been some good news in some stock. Traders bought 5crore shares in delivery; waiting for the same. But if total number of stocks issued is 3crore only, then stocks could not be delivered in demat
account of so many traders.
That’s why futures introduced. These are imaginary bundles of stock. So there is no limitation of quantity. It is like – 22players are playing cricket on the ground, but lacs of players are playing
outside the ground on winning or losing of game. That is like derivative.
Benefits of futures-
1.Less capital required-
10-20% margin is ok to enter trade.
2.Less brokerage cost-
There is no brokerage of delivery because no actual delivery
process is required.
3. positional short selling possible-
You have to square off short sold position in intraday till
3.30pm or the stocks will go in auction & you will have to give
panelty.
But you can short sell any future for 10days ,1month or 2month
& wait for the downfall.
It gives you opportunity to hedge your position in cash market
or future itself. So you are safe in any overnight crisis.
4.Trading in INDEX(nifty/banknifty)possible-
Trading in nifty/banknifty possible due to future trading
only.Nifty has the maximum turnover in futures.
Because it is difficult to choose right sector & stock but index
trade give you simple & single minded approach.
DRAWbacks of futures options
1.If you are buying a single stock of any company , then you are an official partner of that company.They will treat you like this. You will be sent reports, invitation to meetings & your vote for big decisison. But if you buying a lot of 1000 shares in futures ,you are not having any involvement in company.
2. Immature traders are making huge position due to margin facility. When there is big loss, they cost average position due to pressure of losses.
And this may create huge & un affordable losses. If someone doesn’t have ability to afford losses then he try anything to cover losses .If someone have capacity for losses then he will accept it and think with cool mind.
Last Thursday of month is the day of expiry for futures option.
Futures price is not the same as cash market price. Future price may be more than underlying. then it is called future at premium.
If future price is less than underlying, then future is at discount.
There are 3 series available in futures-
This month-
running month December If one buys this month, then he can wait till last Thursday of this month or one can sell within 5minutes if he wants so.
Next month-January
If one buys next month, he can wait till expiry of next month, but me may be able to buy or sell January future in December anytime.
Far month-February
There may be a little difference in price of all these series, but relative movement is same.
ROLLOVER
If you are having a loss in this month future and you hope to recover in next month, then you can sell this month and buy next month future. This is ROLLOVER. Rollover is not feasible in options, because difference in their premium may be more than 100-200%.
One should start trading practice in cash market first with low volume, then increase volume gradually in cash. It will give you proper insight about stock behavior. Then index option/index futures and stock option will be the next stages. Stock future should be the final stage only if it is affordable & it
is needed.