Hey,
I've been doing some Equity(Cash) trades for some time and am looking into the Futures market. However, I have not done Futures trading in whatever capacity till date. I will learn as I go and will not jump into it fast. Will start with small amounts first. But I need some things to be cleared up.
So as I understand it, there are Lots for some permitted stocks in Futures market and the no. of shares per lot(say X) varies from company to company. When we buy 1 lot, if the stock goes up by 1 Rupee, I get Rs. X profit. Am I right up until now?
Now, also the one of the benefits of buying a contract for 1 lot of X shares in Futures as opposed to buy X shares in the normal Equity market is that we don't have to pay the full amount but only 15-20%.
So
Doubt No. 1) What happens when we buy 1 lot(say, 500 shares) of Futures contract worth Rs. 100 per share(total value Rs. 50,000) and then the value goes down to Rs. 70? When I sell this, I lose money(Rs. 30/share = Rs. 15,000). But where was the money in the first place? I haven't deposited the full amount yet because I needed to pay only 15-20%(~10,000) of the actual amount to buy this Futures contract. How much time will the brokerage give us to pay it back? And how will they get that money if someone flees due to the huge losses? Do we have to deposit the full amount first anyway but they only reduce 15-20% from the margin? Is there some sort of collateral or other terms? Not that I'll flee.:lol: Just to know what they have power over.
Doubt No. 2) Are the Futures shares completely separate from the Equity shares? That is, if I buy 1 lot containing 500 shares of XYZ company, and want to sell it, will my shares be sold in the Equity(Cash) market to many different people? Or does someone else somewhere have to buy a Futures contract of XYZ company for me to sell it and get the profit/loss?
Doubt No. 3) Can I sell the Futures contract any time between buying it and the 1/2/3 months pre-fixed time period? Or can I sell ONLY on the expiry date? I can sell at any time, right? Because how can Intraday Futures trading be possible otherwise? I can buy 2 lots of XYZ and sell the next minute or the next day or week or even just before expiry, any time I want? Square-off occurs only on Expiry date and not any time before it?
Doubt No. 4) If I am losing money a few days before Expiry date, can I sell the contract for say Rs. X and then buy another contract at/around Rs. X for another 3 months or something, effectively "renewing" the contract, but with someone else, enabling me to wait longer so that I can make a profit?
Doubt No. 5) So basically, Futures is like Equity except 3 things:
i.) Fixed no. of shares/lot and you have to buy in lots
ii.) Pay only a % of total amount and with lower brokerage
iii.) Fixed time period beyond which the contract will expire and be squared off
So these 5 doubts are there now. Please help me clear these.
EDIT: BTW, do enlighten me about some other things I may not have covered above. I want to know new things about Futures as well, not just clear these doubts.
I've been doing some Equity(Cash) trades for some time and am looking into the Futures market. However, I have not done Futures trading in whatever capacity till date. I will learn as I go and will not jump into it fast. Will start with small amounts first. But I need some things to be cleared up.
So as I understand it, there are Lots for some permitted stocks in Futures market and the no. of shares per lot(say X) varies from company to company. When we buy 1 lot, if the stock goes up by 1 Rupee, I get Rs. X profit. Am I right up until now?
Now, also the one of the benefits of buying a contract for 1 lot of X shares in Futures as opposed to buy X shares in the normal Equity market is that we don't have to pay the full amount but only 15-20%.
So
Doubt No. 1) What happens when we buy 1 lot(say, 500 shares) of Futures contract worth Rs. 100 per share(total value Rs. 50,000) and then the value goes down to Rs. 70? When I sell this, I lose money(Rs. 30/share = Rs. 15,000). But where was the money in the first place? I haven't deposited the full amount yet because I needed to pay only 15-20%(~10,000) of the actual amount to buy this Futures contract. How much time will the brokerage give us to pay it back? And how will they get that money if someone flees due to the huge losses? Do we have to deposit the full amount first anyway but they only reduce 15-20% from the margin? Is there some sort of collateral or other terms? Not that I'll flee.:lol: Just to know what they have power over.
Doubt No. 2) Are the Futures shares completely separate from the Equity shares? That is, if I buy 1 lot containing 500 shares of XYZ company, and want to sell it, will my shares be sold in the Equity(Cash) market to many different people? Or does someone else somewhere have to buy a Futures contract of XYZ company for me to sell it and get the profit/loss?
Doubt No. 3) Can I sell the Futures contract any time between buying it and the 1/2/3 months pre-fixed time period? Or can I sell ONLY on the expiry date? I can sell at any time, right? Because how can Intraday Futures trading be possible otherwise? I can buy 2 lots of XYZ and sell the next minute or the next day or week or even just before expiry, any time I want? Square-off occurs only on Expiry date and not any time before it?
Doubt No. 4) If I am losing money a few days before Expiry date, can I sell the contract for say Rs. X and then buy another contract at/around Rs. X for another 3 months or something, effectively "renewing" the contract, but with someone else, enabling me to wait longer so that I can make a profit?
Doubt No. 5) So basically, Futures is like Equity except 3 things:
i.) Fixed no. of shares/lot and you have to buy in lots
ii.) Pay only a % of total amount and with lower brokerage
iii.) Fixed time period beyond which the contract will expire and be squared off
So these 5 doubts are there now. Please help me clear these.
EDIT: BTW, do enlighten me about some other things I may not have covered above. I want to know new things about Futures as well, not just clear these doubts.
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