What happens to a contract on expiry if I am not able to sell it?

rajanswain · #1 20th December 2007, 09:03 AM

Friends,

I am new to F&O trading. I have picked up the basics from various sources.

I have one nagging doubt - what happens to my contract if I am not able to sell it by the expiry of the settlement period? I have had a few contracts getting auto-squared-off but this was not at the end of the settlement. What if I have good profits but cannot sell the same due to lack of buyers or if I fall sick or something? Similarly, what happens if I have a lost position and am not able to roll it over?

Will appreciate replies from experienced persons.

Thank you.

rkkarnani · #2 20th December 2007, 01:46 PM

Quote:

Originally Posted by rajanswain

Friends,

I am new to F&O trading. I have picked up the basics from various sources.

I have one nagging doubt - what happens to my contract if I am not able to sell it by the expiry of the settlement period? I have had a few contracts getting auto-squared-off but this was not at the end of the settlement. What if I have good profits but cannot sell the same due to lack of buyers or if I fall sick or something? Similarly, what happens if I have a lost position and am not able to roll it over?

Will appreciate replies from experienced persons.

Thank you.

Your contracts in Futures get auto squared at the closing price of the underlying stock.
It cannot get auto squared in between, unless your broker squares it for lack of enough margine or MtoM riskcoverage not enough or whatever but cannot get auto squared before relevant derivative closing.

rajanswain · #3 22nd December 2007, 05:03 PM

Thank you.

param777 · #4 3rd January 2008, 12:02 PM

Hi,
I have a doubt. Please clarify it. Let's say I bought a contract and from next day onwards it goes down. In that case , do I need to maintain some margin or not. In which case broker squares off our position.

rajanswain · #5 6th January 2008, 11:21 AM

Yes, Param. You need to keep more than adequate margin in your allocation if you do not wish to be auto-squared-off in your demat account or having your broker squaring-off and calling for money.

In general, it is not advisable to hold on to a futures lot for more than a few days unless there is some definite good news, a steady trend or some trigger in the offing. You should use a stop-loss or square-off if the price goes in the opposite direction. The margin calls are murder on your finances and you may lose all your allocation before you know it. It happened to me at the time of the P-note issue and I lost so heavily that I stayed away from F&O for two months, doing only cash trades.

Now, with the volumes in F&O having come down drastically due to the abolition of P-notes, it is not quite as lucrative as it used to be. You need to be very vigilant and time your entry and exit shrewdly. Enter only when there is a definite upmove and exit well before the expected target. That way your profits will be small but at least you will get some profits and not book losses.

param777 · #6 7th January 2008, 01:52 PM

Hi Rajanswain,
Thanks a lot for your reply. It is really helpful to me.