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new to futures intraday trading

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  #1  
Old 17th January 2011, 10:26 AM
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Smile new to futures intraday trading

hello friends,

i am moorthy from chennai, i am very much new to future tradings. i am having some doubts in future trading. I am listing them below, please help me in clearing these doubts and help me trading.
1. what is intraday trading in futures ?
is it similar to ''intraday trading in equities'' , where in we buy a share and sell it within a day itself.
2. what is the difference between intraday trading in equities and intraday trading in futures ?
3. can indices can also be traded in intraday futures ?
4. what is called open intrest ? how to read this figure ? and how to make decisions with this figure ?

can some one please clarify all my these doubts. i am very much new to this futures trading. kindly help me
thanking you



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  #2  
Old 17th January 2011, 10:50 AM
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Default Re: new to futures intraday trading

This should help.. was sent in a forwarded e-mail from a friend
What are Derivatives?
A derivative is a financial instrument whose value depends on the values of other underlying variables. As the name suggests it derives its value from an underlying asset. For Example - A derivative may be created for a share, or any material object. The most common underlying assets include stocks, bonds, commodities etc.

Let us try and understand a Derivatives contract with an example:
Ramesh buys a futures contract in the scrip "Infosys". He will make a profit of Rs.1000 if the price of Infosys rises by Rs 1000. If the price remains unchanged Ramesh will receive nothing. If the stock price of Infosys falls by Rs 500 he will lose Rs 500.

As we can see, the above contract depends upon the price of the Infosys scrip, which is the underlying security. Similarly, futures trading can be done on the indices also. These are termed as Index futures. Nifty futures are a very commonly traded derivatives contract in the stock markets. The underlying security in the case of a Nifty Futures contract would be the Index-Nifty. Sensex futures have also been introduced in our market.

What are the different types of Derivatives?
Derivatives are basically classified into the following:
* Futures /Forwards
* Options
* Swaps

What are Futures?

A futures contract is a type of derivative instrument, or financial contract where two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price.
The example stated below will simplify the concept:
Case1:
Rajesh wants to buy a Car, which costs Rs 100,000 but owing to cash shortage at the moment, he decides to buy it at a later period say 2 months from today. However, he feels that after 2 months the prices of Cars may increase due to increase in input/ manufacturing costs. To be on the safer side, Rajesh enters into a contract with the car Manufacturer stating that 2 months from now he will buy the car for Rs 100,000. In other words he is being cautious and agrees to buy the car at today's price 2 months from now. The forward contract thus entered into will be settled at maturity which in this case will be in 2 months from now. The manufacturer will deliver the asset to Rajesh at the end of two months and Rajesh in turn will pay cash delivery.
Thus a forward contract is the simplest mode of a derivative transaction. It is an agreement to buy or sell a specific quantity of an asset at a certain future time for a specified price. No cash is exchanged when the contract is entered into.

What are Index Futures?
As Stated above, Futures are derivatives where two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. Index futures are futures contracts where the underlying is a stock index (Nifty or Sensex) and helps a trader to take a view on the market as a whole.

What is meant by Lot size?

Lot size refers to the quantity in which an investor in the markets can trade in a derivative of particular scrip. For Ex-Nifty Futures have a lot size of 50 or multiples of 50. Hence if a person were to buy 1 lot of Nifty Futures, the value would be 50*Nifty Index Value at that point of time. Lot sizes are fixed and may differ from scrip to scrip.

Similarly lots of other scrip such as Infosys, reliance etc can be bought and each may have a different lot size. NSE has fixed the minimum value as two lakhs for any Futures and Options contract. Lot sizes are fixed accordingly which will be the minimum shares on which a trader can hold positions.

What is meant by expiry period in Futures?

Each contract entered into has an expiry period. This refers to the period within which the futures contract must be fulfilled. Futures contracts may have durations of 1 month, 2 months or at the most 3 months. Each contract expires on the last Thursday of the expiry month and simultaneously a new contract is introduced for trading after expiry of a contract.
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  #3  
Old 17th January 2011, 05:12 PM
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Smile Re: new to futures intraday trading

Quote:
Originally Posted by sumeetsj View Post
This should help.. was sent in a forwarded e-mail from a friend
What are Derivatives?
A derivative is a financial instrument whose value depends on the values of other underlying variables. As the name suggests it derives its value from an underlying asset. For Example - A derivative may be created for a share, or any material object. The most common underlying assets include stocks, bonds, commodities etc.

Let us try and understand a Derivatives contract with an example:
Ramesh buys a futures contract in the scrip "Infosys". He will make a profit of Rs.1000 if the price of Infosys rises by Rs 1000. If the price remains unchanged Ramesh will receive nothing. If the stock price of Infosys falls by Rs 500 he will lose Rs 500.

As we can see, the above contract depends upon the price of the Infosys scrip, which is the underlying security. Similarly, futures trading can be done on the indices also. These are termed as Index futures. Nifty futures are a very commonly traded derivatives contract in the stock markets. The underlying security in the case of a Nifty Futures contract would be the Index-Nifty. Sensex futures have also been introduced in our market.

What are the different types of Derivatives?
Derivatives are basically classified into the following:
* Futures /Forwards
* Options
* Swaps

What are Futures?

A futures contract is a type of derivative instrument, or financial contract where two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price.
The example stated below will simplify the concept:
Case1:
Rajesh wants to buy a Car, which costs Rs 100,000 but owing to cash shortage at the moment, he decides to buy it at a later period say 2 months from today. However, he feels that after 2 months the prices of Cars may increase due to increase in input/ manufacturing costs. To be on the safer side, Rajesh enters into a contract with the car Manufacturer stating that 2 months from now he will buy the car for Rs 100,000. In other words he is being cautious and agrees to buy the car at today's price 2 months from now. The forward contract thus entered into will be settled at maturity which in this case will be in 2 months from now. The manufacturer will deliver the asset to Rajesh at the end of two months and Rajesh in turn will pay cash delivery.
Thus a forward contract is the simplest mode of a derivative transaction. It is an agreement to buy or sell a specific quantity of an asset at a certain future time for a specified price. No cash is exchanged when the contract is entered into.

What are Index Futures?
As Stated above, Futures are derivatives where two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. Index futures are futures contracts where the underlying is a stock index (Nifty or Sensex) and helps a trader to take a view on the market as a whole.

What is meant by Lot size?

Lot size refers to the quantity in which an investor in the markets can trade in a derivative of particular scrip. For Ex-Nifty Futures have a lot size of 50 or multiples of 50. Hence if a person were to buy 1 lot of Nifty Futures, the value would be 50*Nifty Index Value at that point of time. Lot sizes are fixed and may differ from scrip to scrip.

Similarly lots of other scrip such as Infosys, reliance etc can be bought and each may have a different lot size. NSE has fixed the minimum value as two lakhs for any Futures and Options contract. Lot sizes are fixed accordingly which will be the minimum shares on which a trader can hold positions.

What is meant by expiry period in Futures?

Each contract entered into has an expiry period. This refers to the period within which the futures contract must be fulfilled. Futures contracts may have durations of 1 month, 2 months or at the most 3 months. Each contract expires on the last Thursday of the expiry month and simultaneously a new contract is introduced for trading after expiry of a contract.
thank you ver much for your valuable information sir,
sir please clarify my other oubts also, kindly clarify me what is ''intraday traing in futures''..? is it similar to intraa trading in equities, or what is the difference between these two...
thi will be very much helpful for me. kinly clarify the same ir.
thanking you.
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  #4  
Old 18th January 2011, 09:45 AM
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Default Re: new to futures intraday trading

Its the same, just that you square the position in intraday
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  #5  
Old 19th January 2011, 04:05 PM
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Default Re: new to futures intraday trading

Quote:
Originally Posted by sumeetsj View Post
This should help.. was sent in a forwarded e-mail from a friend
What are Derivatives?
A derivative is a financial instrument whose value depends on the values of other underlying variables. As the name suggests it derives its value from an underlying asset. For Example - A derivative may be created for a share, or any material object. The most common underlying assets include stocks, bonds, commodities etc.

Let us try and understand a Derivatives contract with an example:
Ramesh buys a futures contract in the scrip "Infosys". He will make a profit of Rs.1000 if the price of Infosys rises by Rs 1000. If the price remains unchanged Ramesh will receive nothing. If the stock price of Infosys falls by Rs 500 he will lose Rs 500.

As we can see, the above contract depends upon the price of the Infosys scrip, which is the underlying security. Similarly, futures trading can be done on the indices also. These are termed as Index futures. Nifty futures are a very commonly traded derivatives contract in the stock markets. The underlying security in the case of a Nifty Futures contract would be the Index-Nifty. Sensex futures have also been introduced in our market.

What are the different types of Derivatives?
Derivatives are basically classified into the following:
* Futures /Forwards
* Options
* Swaps

What are Futures?

A futures contract is a type of derivative instrument, or financial contract where two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price.
The example stated below will simplify the concept:
Case1:
Rajesh wants to buy a Car, which costs Rs 100,000 but owing to cash shortage at the moment, he decides to buy it at a later period say 2 months from today. However, he feels that after 2 months the prices of Cars may increase due to increase in input/ manufacturing costs. To be on the safer side, Rajesh enters into a contract with the car Manufacturer stating that 2 months from now he will buy the car for Rs 100,000. In other words he is being cautious and agrees to buy the car at today's price 2 months from now. The forward contract thus entered into will be settled at maturity which in this case will be in 2 months from now. The manufacturer will deliver the asset to Rajesh at the end of two months and Rajesh in turn will pay cash delivery.
Thus a forward contract is the simplest mode of a derivative transaction. It is an agreement to buy or sell a specific quantity of an asset at a certain future time for a specified price. No cash is exchanged when the contract is entered into.

What are Index Futures?
As Stated above, Futures are derivatives where two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. Index futures are futures contracts where the underlying is a stock index (Nifty or Sensex) and helps a trader to take a view on the market as a whole.

What is meant by Lot size?

Lot size refers to the quantity in which an investor in the markets can trade in a derivative of particular scrip. For Ex-Nifty Futures have a lot size of 50 or multiples of 50. Hence if a person were to buy 1 lot of Nifty Futures, the value would be 50*Nifty Index Value at that point of time. Lot sizes are fixed and may differ from scrip to scrip.

Similarly lots of other scrip such as Infosys, reliance etc can be bought and each may have a different lot size. NSE has fixed the minimum value as two lakhs for any Futures and Options contract. Lot sizes are fixed accordingly which will be the minimum shares on which a trader can hold positions.

What is meant by expiry period in Futures?

Each contract entered into has an expiry period. This refers to the period within which the futures contract must be fulfilled. Futures contracts may have durations of 1 month, 2 months or at the most 3 months. Each contract expires on the last Thursday of the expiry month and simultaneously a new contract is introduced for trading after expiry of a contract.
Hi Sumit,

Helpful write up. Anyways hope you can answer a couple of more questions in relation to this.

How does this futures thing really work with equities?
Since these futures stocks are traded online, do they come with information about the contract period? I am sure since there is an exchange in between the buyer and seller, the buyer and seller wont know each other. So lets say I buy 1 lot of 50 infosys at 3200 each today, does that mean I have to pay 3200 * 50= Rs. 160000 at the end of the contract period of 1 or 2 or 3 months?
Question 2: Lets say the contract period was 2 months and now i got possession of my 1 lot of 50 infosys shares but now since the share is trading higher the market value of these shares is now Rs. 200000. Now that i have possession of these shares after 2 months and want to make my profits so can i sell these in the cash markets? Because if i sell it in the futures market i might have to wait again for 2 months to get my money?
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Old 19th January 2011, 05:30 PM
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Default Re: new to futures intraday trading

Well i found the answer to my question on this link

http://www.tradingpicks.com/futures.htm

i just realized how stupid my question might have sounded to people familiar with futures. On the other hand there are no such things as stupid questions, there are only stupid people. :P
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Old 19th January 2011, 06:39 PM
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Default Re: new to futures intraday trading

I read the link above but I still don't get it.

Say I am reading the chart of Reliance and I see a trend change and buy a lot of Reliance futures. Now would I be able to sell it the next day when the price has appreciated? Is it just like buying and selling any stock? or do you wait for the end of the delivery period? I don't get it....
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  #8  
Old 19th January 2011, 06:50 PM
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Default Re: new to futures intraday trading

Quote:
Originally Posted by four321zero View Post
Hi Sumit,

Helpful write up. Anyways hope you can answer a couple of more questions in relation to this.

How does this futures thing really work with equities?
Since these futures stocks are traded online, do they come with information about the contract period? I am sure since there is an exchange in between the buyer and seller, the buyer and seller wont know each other. So lets say I buy 1 lot of 50 infosys at 3200 each today, does that mean I have to pay 3200 * 50= Rs. 160000 at the end of the contract period of 1 or 2 or 3 months?
Question 2: Lets say the contract period was 2 months and now i got possession of my 1 lot of 50 infosys shares but now since the share is trading higher the market value of these shares is now Rs. 200000. Now that i have possession of these shares after 2 months and want to make my profits so can i sell these in the cash markets? Because if i sell it in the futures market i might have to wait again for 2 months to get my money?
When you buy 1 lot of Infosys, the contract value will be 1,60,000. But the margin you have to pay to buy will be roughly between 25-30%(this figure is not an exact, you can get a sheet of margins for Futures contract from your broker) of the contract value.
At the expiry your contract will be squared and settled in cash. You dont have to pay that much money to buy. And if you wish to keep the position you will rollover. Means square the position just before expiry and take a new one in next expiry. You will not have to wait to get your money. Its instant.

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  #9  
Old 20th January 2011, 03:23 PM
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Default Re: new to futures intraday trading

Quote:
Originally Posted by blueskythinking View Post
I read the link above but I still don't get it.

Say I am reading the chart of Reliance and I see a trend change and buy a lot of Reliance futures. Now would I be able to sell it the next day when the price has appreciated? Is it just like buying and selling any stock? or do you wait for the end of the delivery period? I don't get it....


You can buy and sell OR vice versa with futures. There is no waiting till the expiry.
Example:
Suppose u bought 1 lot of Reliance(lot size of 250) for 40K(odd) at rs. 1000 and sell next day at 1010, then you have made a profit of Rs. 2500/-
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Old 20th January 2011, 04:57 PM
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Default Re: new to futures intraday trading

Quote:
Originally Posted by sumeetsj View Post
[FONT="Comic Sans MS"]
You can buy and sell OR vice versa with futures. There is no waiting till the expiry.
Ok correct me if i am understand it wrong.

So in other words, all you have to pay back is the total margin when u sell?

Example- My capital is 10,000 the margin given to me is 90,000 and stocks are worth 100,000. If the value of stocks increase to 110,000 and i sell it at that rate, i got to pay back 90,000 plus brokerage and keep the rest.
In another scenario if my stock value falls to 90,000, i have to pay back 90,000 plus brokerage and my capital of 10,000 is completely lost.
Have i got it right?


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