Cash Market with Exposure & Futures

#1
Please Clarify:

What is the difference in buying shares in Cash Market (with exposure) and futures market?

Ex: If I buy Suzlon 1000 shares @ CMP 100 rupees with 5 times exposure, I will pay only 20000 rupees only &
If I buy Suzlon futures 1 lot (say 1 lot = 1000 shares) @ CMP 100 rupees, I will pay only 20000 rupees only

in both cases, brokerage is being calculated as 100 X 1000 X 0.02% (Say my intraday brokerage is 0.02%)

then what is the use while buying futures instead of cash?
 

bunny

Well-Known Member
#2
Futures is a derivative. Its a trader's tool, not primarily meant for investors. In futures, you don't pay the entire bill upfront, but only a part of it which is called "margin". The required margin is about 10 - 15 % for index futures and 20 - 25% for stock futures of the contract value. Any profit or loss is to be settle in Mark-to-market (MTM).

Example:
Scrip is LT. Futures lot size is 200. The current value of one LT(in cash market) is say Rs. 1500. Thus,
Contract value = Share price * Lot size
Therefore, = 1500 * 200 = 3,00,000 or 3 lacs.
25% of 3 lacs = 75, 000.

Thus, 75, 000 is the amount needed to buy or short one lot of LT.

Lets say, next day LT increases to 1530. Thus you will receive a credit of difference, which is equal to DIFFERENCE * LOT SIZE in your account. Thus, it will come around to 30 * 200 = 6000. Thus, 6000 is your MTM profit over invested capital of 75,000 (Returns = 8%)

Similarly, if LT share price were to drop, say to 1460, then 40 *200 = 8000 would be debited from your account. Thus you would have incurred a loss of 10.66 5 over your invested capital.
 
#3
bunny describe very good and one more thing that if you carry stocks in cash than you have to pay brok- 0.20 % ( delivery ) and if you carry future than you have to pay brok- 0.02 % . so in cash market if you carry position than you pay delivery brok (10 times) and in future charged only intraday brok .
 
#4
Futures is a derivative. Its a trader's tool, not primarily meant for investors. In futures, you don't pay the entire bill upfront, but only a part of it which is called "margin". The required margin is about 10 - 15 % for index futures and 20 - 25% for stock futures of the contract value. Any profit or loss is to be settle in Mark-to-market (MTM).

Example:
Scrip is LT. Futures lot size is 200. The current value of one LT(in cash market) is say Rs. 1500. Thus,
Contract value = Share price * Lot size
Therefore, = 1500 * 200 = 3,00,000 or 3 lacs.
25% of 3 lacs = 75, 000.

Thus, 75, 000 is the amount needed to buy or short one lot of LT.

Lets say, next day LT increases to 1530. Thus you will receive a credit of difference, which is equal to DIFFERENCE * LOT SIZE in your account. Thus, it will come around to 30 * 200 = 6000. Thus, 6000 is your MTM profit over invested capital of 75,000 (Returns = 8%)

Similarly, if LT share price were to drop, say to 1460, then 40 *200 = 8000 would be debited from your account. Thus you would have incurred a loss of 10.66 5 over your invested capital.
Thank you very much for the explanations.

However If I will close my futures within intraday, then whats the benefit of using futures instead of cash?