Newbie in Futures

Hi

I have not traded futures before. All i know is its theory concept. I have an Geojit trading account.

Many are talking about futures and how we can hedge them to minimize our loss but i am not able to understand many things :

1. How exactly one buys / sells futures? (Especially in Geojit panel).


2. Can we sell futures before its expiry


3. Where future shares will go after its expiry. Lets say there
are less buyers than future expiry shares what will happen then?


4. I have read that no delivery will be their in case of Indian futures and options only difference cash is credited/debited. Is it true ?


5. Can we select any price future.

I mean let's say stock A is trading at 100 Rs. Lets assume 2 cases

a. I predict that after 1 week it will got to 150 rs
b. I predict that after 1 week it will close at 80 rs

How to make profits in these cases using futures ?


6. Can futures be traded using margin facility or it requires cash.


7. I know future brokerage is based on lots. Geojit says
< 9 cr 75 (current) for 1 lot.
Now what exactly it means?


8. I know futures is kind of risky but let's take example of Pipavav Shipyard. I gained an profit of 14% on delivery itself since I bought at lows last week (after LIC Housing scam broke) Even a Tom Dick and Harry can make it out that the share price will rise within one week and its rumors that's affecting the price currently. .

So I am wondering any smart trader (who is willing to take risk) can easily make a chuck of money by using futures of these share right ? It's not as risky as it sounds I think .

Sorry for asking too many questions, but I am a naive trader with little experience .

someone please answer these questions
i am also a newbie in futures please do help

1. How exactly one buys / sells futures? (Especially in Geojit panel). ==> I don't use Geojit

2. Can we sell futures before its expiry ==> Yes, you can buy/sell the future contact before expiry

3. Where future shares will go after its expiry. Lets say there
are less buyers than future expiry shares what will happen then? ==> The future will expire after its expiry day. The buyer/seller will get the difference as compared to the value of the underlying at the time of expiry.

Suppose you have bought nifty Jan future at 6000 and during expiry if you are not able to sell or didn't sell, and the nifty spot is at 5950, you will loose 50 points.

Suppose you have sold nifty Jan future at 6000 and during expiry if you are not able to buy or didn't buy, and the nifty spot is at 5950, you will gain 50 points.

4. I have read that no delivery will be their in case of Indian futures and options only difference cash is credited/debited. Is it true ? ==> Yes Even I have heard the same thing. I will leave this to some senior to confirm.

5. Can we select any price future.

I mean let's say stock A is trading at 100 Rs. Lets assume 2 cases

a. I predict that after 1 week it will got to 150 rs ==> for this you buy the future contract of stock A
b. I predict that after 1 week it will close at 80 rs ==> for this you sell the future contract of stock A

How to make profits in these cases using futures ? ==> Futures can be traded both ways. unlike stocks, which can only be sold if you have bought them earlier and are currently in your demat account.


6. Can futures be traded using margin facility or it requires cash. ==> Can be traded using margin facility (to sell/buy one nifty contract, you need to have approx 35k)

7. I know future brokerage is based on lots. Geojit says
< 9 cr 75 (current) for 1 lot.
Now what exactly it means? ==> pls ask Geojit

Risk is involved in stock markets always. You will have to trade with proper money and risk management.

My Understanding of Futures :

1. Its a leveraged product as in, you only pay part of the money required to buy (LONG) a bunch of shares which you normally wont be able to, with the hope that you could sell them at a higher price. Similarly you could sell (SHORT) a bunch or shares you dont actually have with the hope to buy them back at a lower price.

For ex: You have Rs. 70000 and you would like to invest all of that in Tata Steel whose share is currently trading at say 700. You are confident that it will go up by Rs. 10-15 in a week. You can only buy about a 100 shares of Tata Steel if you want to take delivery. Say after a week it goes to 715 your profit would be 15*100 = Rs. 1500. Now instead if you had bought 1 lot of Tata Steel (500 shares) you would only be required to maintain a margin of Rs. 55000/- with your broker. You would still have extra 15000 remaining for M2M (will explain this later). Now after a week TS is at 715, you sell of the futures lot and your profit is 15*500 = Rs. 7500, Conversely had it gone down by 15 Rs. your loss in the delivery based trade (cash) woudl have been only Rs. 1500/- while your loss in Futures based trade (FnO) would have been Rs. 7500/-


So for the same investment of Rs. 70,000, you could potentially increase your profits by 5 times or losses by 5 times.

Futures is good if your investment horizon is anywhere between 2 days to a month and beyond. But you should be extremely careful as its a leveraged investment and could cause you heavy losses in a very short time.

Coming to your questions :

1. Didnt trade with Geojit but try and look for FnO sections or Derivatives section. In my Zerodha Panel, When I want to add a scrip to my watchlist, I can either choose one from NSE (Cash/EQ) or NFO (FnO). SO If I wanted to add TATA Steel Equity I choose from NSE, if I want to buy Tata Steel Futures (Jan/Feb/March) I look in NFO

2. You can buy/sell futures till the date of expiry including the day of expiry.

3. As explained in my previous post, its like paper trading as far as shares are concerned. No shares are actually trasnferred. Only the difference between buy price and sell price is given/taken at the time of squaring off/expiry.

4. Yes explained it above.

5. You cannot 'select' a price as such in Futures but you can do that in Options. Futures its very similar to actual buying or selling of shares except that you buy and sell more no. of shares with marginal capital. Options on the other hand is a bit more complex (read, I-am-not-an-expert-so-will-allow-someone-else-to-explain )
As per your example, you LONG (buy first, sell later) in the first case and SHORT (Sell first and buy later) in the second case.

6. Margin. Had it been cash, there really would have been no point in buying/selling futures.

7. Better to check with your broker but, usually every broker charges a fixed amount or % per lot. Some like Zerodha charge only Rs. 20 per TRADE (may include 1-300 lots)

8. Yes, you are right. But you wont stop there. You will buy and sell even when there is no hugh drop in Nifty/Sensex and what if that stock goes down the next day ? So yes even Tom Dick and Harry can make money buy doing that but greed is part of our makeup and we dont do just 1-2 trades per month. Once we taste profit we tend to trade more and thats when losses start unless you know what you are buying/selling.

i got a doubt with regard to futures please clarify

suppose on Monday 12 pm i bought 1 lot ( say 2000 shares ) of company A for Rs 100 per share the share closed on Monday evening at Rs 110 per share, i did not sell then, on Tuesday it went down to Rs 95 per share, again i did not sell , on Wednesday when it reached Rs 105 per share i sold it off.

would anyone explain in detail what is the total profit or loss that i have made?

5 rs per share.

BUT inbetween your a/c would be credited and debited in the following fashion
Day 1 Debit 2000x100x20% as margin of purchase of 1 lot. (Rs.40000)
Day 1 Creadit of 10x2000=20000 as MTM (mark to market)
Day 2 Debit of 15x2000=30000 as MTM
Day 3 Credit of (2000x100x20%)+10x2000=20000
End result = -40000+20000-30000+40000+20000 = 10000 = 5x2000

Clear

thankyou so very much

would you please clear one more doubt for me

all these values i.e Rs 100, 110, 95 and 105 the current price of stock future or the current price of the stock?

do we buy and sell on the basis of the price of current price of stock future and is the MTM profit or loss calculated on the closing price of the stock or future stock?

ALL stock future ... and not on stock spot price.
Future could be at a premium or at a discount to spot price
for eg. Nifty Spot is at 5,904.60 and futures is at 5,896.10 (disc)
and Reliance Spot is at 1067 while futures is at 1067.30 (premium)