Basics of future trading

[AW10]

This is just a guideline that is used by NSE to determine the lot size of any contract.
Say for ex a stock priced at 100 rs. will have lot size of 2000 giving us the contract value of approximatelly 2 Lac.

In next few months, if stock goes up to 225 Rs. then the value of a contract lot will be
225* 2000 = 4.5 Lac.
Thats when NSE will adjust the lot size and reduce it to say 100, so that the new contract value comes to the level of 225*1000 = 2.25 lac. (approximately close to 2Lac)

As a result of 2008 bear market, many stock fell by over 50%.. so the value of their 1 lot was even less then 1 lac. That results in excessive leveraged trading in market hence NSE stepped in and increased the lot size of many contracts.
But they decided to leave Nifty Lot size to 50.

For trading purpose, just look at the contract size cause thats what matters. Let NSE guys decide on what shd be lot size.

Sameer don't get me wrong but as I suggested in my previous post, do chk out the material at NSE site. That will answer most of your entry-level questions.

You can find out a lot of basic info about F&O trading from help section of your broker's site. You can also refer to NSE site and education/certification section there has nice study material addressing most of the basic questions.

Happy Trading

 

[sameer999]

This is just a guideline that is used by NSE to determine the lot size of any contract.
Say for ex a stock priced at 100 rs. will have lot size of 200 giving us the contract value of approximatelly 2 Lac.

In next few months, if stock goes up to 225 Rs. then the value of a contract lot will be
225* 200 = 4.5 Lac.
Thats when NSE will adjust the lot size and reduce it to say 100, so that the new contract value comes to the level of 225*100 = 2.25 lac. (approximately close to 2Lac)

As a result of 2008 bear market, many stock fell by over 50%.. so the value of their 1 lot was even less then 1 lac. That results in excessive leveraged trading in market hence NSE stepped in and increased the lot size of many contracts.
But they decided to leave Nifty Lot size to 50.

For trading purpose, just look at the contract size cause thats what matters. Let NSE guys decide on what shd be lot size.

Sameer don't get me wrong but as I suggested in my previous post, do chk out the material at NSE site. That will answer most of your entry-level questions.



Happy Trading

Thanks once again AW10 for your answer, but is there any typing error i guess in the line marked red.


stock price at 100 shld hv lot size of 2000 to make contract equal to 2 lacs ?

 

[sameer999]

I hv another question related to contract size.

suzlon has a lot size of 3000 shares and as these days it has been trading at premium of arround in the range 2-10 Rs. , then if i buy 1 lot , it wont make the contract size equal to 2 lacs .

so do i need to buy more than 1 lot so as to make total contract value of arround 2 lacs ?



Thanks in advance

 

[Old Monk]

Your transaction cost will be 4520 * 50 = 226000 rs... but u don't have to pay the full money.
Your broker will ask for just the margin money which is 15 to 20% (depends on broker and your trading relationship with them.). So approx 30k to 35k will be blocked from your account balance.

Happy Trading

Thanks AW10. I have an other question. Do I have to pay interest on the margin money supplied by the broker, if I want to leave the position open at EOD.

-Monk

 

[AW10]

Thanks Sameer for pointing out the typo. I have corrected my post.

 

[AW10]

Thanks AW10. I have an other question. Do I have to pay interest on the margin money supplied by the broker, if I want to leave the position open at EOD.

-Monk

Plz chk that out with your broker. Some brokers do charge interest on it and others dont.
But even if that is charged, for a day, it will be very small amount.. say 15% per year interest rate comes to 15%/365days for a day. So u calculate the amount that u will be paying as interest.
In leveraged trading, even if position goes in your favour by 5 to 10 paise. u will make up for the interest.

So focus on big factors, and don't worry about factors that have minimum impact.
Try to get the trend, direction, risk mgmt, position size etc right.. and u will be see the the improvment in your P&L.

Happy Trading

 

[AW10]

I hv another question related to contract size.

suzlon has a lot size of 3000 shares and as these days it has been trading at premium of arround in the range 2-10 Rs. , then if i buy 1 lot , it wont make the contract size equal to 2 lacs .

so do i need to buy more than 1 lot so as to make total contract value of arround 2 lacs ?



Thanks in advance

Sameer, u don't have to worry about this magic number of 2 Lac.
Just ignore it.. It makes no difference in yr trading.

If u want to buy suzlon, 1 lot.. then u pay for 3000 qty at @ mkt price.
NSE revisits the lot size a defined interval, not everyday.. so till the next change from them, we have no choice but to accept that lot size of suzlon is 3000..
During this period, even if suzlon falls to 50 rs.. or goes to 200.. lot size still remains at 3000 and u pay the price which is going on in market at that moment.

Happy Trading

 

[sameer999]

Thnx alot AW10 for clearing my doubts.

I hav another question goin in my mind regarding future trading.
I will begin my question with the word SUPPOSE.

Suppose, nifty is at 4500 and nifty future of that month is at 4490 then if i buy 1 lot of nifty futures @ 4490 , i pay som 10-15% of (4490 x 50 )

Let nifty be at 4520 afte 1 hour and nifty futures is at 4510.

I am at a profit of Rs. 20 per nifty , 20x50 = 1000Rs. per lot.

I see that in nifty futures if nifty does not makes large moves, its difficult to get profit atleast on intra day basis.
Am i right? so one takes a position in futures and waits as he has 1 month time and sees a right opportunity whn nifty makes big move in the direction tht favors and so the person gets out in profit.


Plz comment on this.

Also, i wnt to knw how fast the value of nifty futures change with respect to the changes in nifty?




Thanks

 

[AW10]

Sameer, Nifty Future (NF) is different beast from NIFTY (though it derives its price from NIFTY).
NF will most of the time be at discount or premium to Nifty. So rather worrying about the calculation of that premium.. Just focus on one chart.. and that is of NIFTY Future..

You can't buy Nifty.. so for trading it doesn't make and sense to follow this chart, make your trading decision and risk your money.

NF moves as much as Nifty moves.. maybe few points plus or minus.. So you always have many opportunities for get profitable trade on NF.
My suggestion will be to focus on NF chart.. because that is what u are going to trade.

on a lighter note - if you have to marry a girl, then will u interview her or her mother / father / relative ?

Happy Trading.

 

[sameer999]

Sameer, Nifty Future (NF) is different beast from NIFTY (though it derives its price from NIFTY).
NF will most of the time be at discount or premium to Nifty. So rather worrying about the calculation of that premium.. Just focus on one chart.. and that is of NIFTY Future..

You can't buy Nifty.. so for trading it doesn't make and sense to follow this chart, make your trading decision and risk your money.

NF moves as much as Nifty moves.. maybe few points plus or minus.. So you always have many opportunities for get profitable trade on NF.
My suggestion will be to focus on NF chart.. because that is what u are going to trade.

on a lighter note - if you have to marry a girl, then will u interview her or her mother / father / relative ?

Happy Trading.

Thnz AW10 , nice answer, yes i wont interview the girls mom n dad or relative!

rightly said by u.


But why do people trade futures when options give much more ease and flexibility with higher returns than futures.


Can u explain this?