Archive for July 23rd, 2008
1) Limitation on holding -
If you buy or sell a future contract then you have limitation of time frame to square off your position before expiry
date.
For example - If you buy or sell future contract of one month expiry period then you have to square off your position
before your expiry date of that month, so in this example you got one month period. So likewise if you go for two
month expiry period then you get 2 months and if you go for three month expiry then you will get 3 month expiry
period to square off your position.
2) Level of Risk -
Due to margin facility in future trading you may earn huge profit by investing fewer amounts but at the contrary side
if your trade goes wrong then you may have to suffer huge loss.
3) Limitation on stocks -
You can’t do future trading on all stocks. You can only do on listed stocks on Nifty and Jr. Nifty.
July 23rd, 2008
1) Margin is available -
In future trading you get margin to buy (but can hold only up to maximum of 3 months), while in stock trading you
must have that much of amount in your account to buy.
For example - If you plan to buy stock XYZ at Rs. 100 and quantity 1000 shares then you have to pay 1 lakh rupees (RS 100 x1000 qty). But if you plan to buy XYZ future contract and that contract lot size has 1000 quantity of shares then instead of paying 1 lakh rupees you have to pay just 20%to 30% of whole amount which comes to 20 thousand to 30 thousand rupees.
In short in future trading you have to pay just 20% to 30% of the whole amount what you pay if you buy stock of that price. But limitation for this is your expiry period. Means if you bought future of one month expiry then you have to square off within that one month likewise you can buy maximum of three months expiry.
2) Possible to do short selling -
You can short sell futures- You can sell futures without buying them which is called short selling and later buy within
your expiry period, to cover up your positions.
This is not possible in stocks. You can’t sell stocks before buying them in delivery (you can do in intraday). You can
short sell futures and can cover off within your expiry period.
For example - If expiry period of your future contract is of 1 month then you have time frame of one month to cover off your order like wise if your future expiry period is of two months then you have time frame of two months and this continues till three months and not more then three months.
In short selling of futures also you get margin as you get in buying of futures.
3) Brokerages are low -
Brokerages offered for future trading are less as compared to stock delivery trading.
July 23rd, 2008
Future or derivative trading is the process of buying or selling stock future or index future for a certain period of time and squaring off before the expiry date.
Expiry period can be of one month, two month and three month and not more then of three month.
Its not compulsion that you have to square off your positions on the expiry date or wait till the expiry period but in fact you can square off at any time even, at the same day, or you can hold as long as you want but remember to square off before expiry date.
Most of the times on 3rd month expiry future you may see very less trading volumes.
Generally most of the traders/investors trade or invest on current month future or second month future contract and you may see very low volumes on last month means third month expiry .
But on Nifty index contract or on other index contract you may see good trading volumes even on 3rd month expiry future also.
You can also buy and sell or sell and buy future contract on the same day of any expiry month. This is called as day trading or intraday in futures.
Selling future contract before buying is called short selling. Short selling is allowed in futures trading
July 23rd, 2008
As you can do future trading on stocks likewise you can do trading on different indices like Nifty index, IT index, Auto index, Pharma index etc.
July 23rd, 2008
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