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Major Advantages of Futures Trading over Stock Trading in share market

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.

Entry Filed under: F and O

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