Day Trading Stocks & Futures
- Thread starter TraderRavi
- Start date
- Tags banknifty bnf daytrading nifty future
@Pradeep Narayan Still holding cipla? Ill exit if I get 509.50 before 315pm.
You holding or booked?
You holding or booked?
@against_tides
Futures and options are derivative Instruments. They are called "derivatives" because they derive their value from some underlying asset. Let me use Reliance as an example. Reliance futures is the derivative instrument here and it will derive its value from the underlying value of Reliance shares i.e share traded in the cash segment. Cash Segment rates are also called spot rates.
I will try not to talk about options as it a bit complicated and lengthy to explain.
Futures are traded in a different segment called the F&O segment. Futures are called as futures because they are contracts that are valid only until a predetermined future date. They all come with an expiry date. For ex A Reliance 27oct2018 contract means that this futures contract will expire on the 27-dec-2018. ( In our markets, settlement/expiry happens on the last thursday of every month. 27th dec is the last thursday in dec 2018)
Trading Futures is very similar to trading shares except that unlike shares where you can buy any quantity, future contracts have a pre-decided quantity which is established by the exchanges. This is called as a lot. Example, Reliance futures has a lot size of 500 i.e 500 units/shares that make one lot. You have to buy/sell in multiples of 1 lot.
Futures, as mentioned derive their value from the underlying. They are traded at a premium or discount or at par with the underlying depending on the sentiment in the market. If traders are very bullish on Reliance, then they are willing to pay a higher premium. Example Reliance spot will be trading at 1150 and futures maybe trading at 1155. This premium depends on other factors as well. In bearish markets, you can notice future contracts trading at a discount to the spot rate. Sometimes at par with the spot rate.
The advantage of trading futures is that you have to pay only a margin amount to take a position. Ex Reliance is a 500 shares per lot. If you have to trade 500 units of Reliance in the cash market then you would need 500X1150= 575,000 (lets assume 1150 is the market price). But in the futures market you would have to pay only a margin of this amount. Say 20% margin on 575,000 = 1,15,000 rs. This margin requirement is also decided by the exchange and varies from stock to stock depending on SPAN(Standard portfolio of analysis of risk) and exposure margin.
Futures and options are primarily designed to be used as a hedging instruments and not as a speculative instrument. How is it supposed to work? Lets say you are an investor who has purchased 500 Reliance shares in cash segment (delivery buying) at 1000/-. The price moves up and is trading at 1150. For some reason you fear that Reliance stock will fall and your profits will be eroded. In order to hedge your loss, you can short sell one lot of Reliance futures at 1150. Lets assume that after 30 days the stock has falls back to 1000/- taking away your entire profit of 500*150=75,000/- ( 500 shares multiplied by 150 rs profits lost). However, your sell position in futures at 1150 is now trading at 1000/- thereby giving you a profit of 500*150=75000/-. As you can see your profits in the cash position were protected by the short sold position in the futures. On expiry day you can choose to let the contract expire or square it off and enter a fresh position.
Similarly, If the stock were to go up from 1150 to 1250, then you would be gaining 500*100=50000/- from your cash position but losing the same amount on the futures position. In both cases, you would have locked your profits of 150/- per share.
How to trade them? Just click on the futures tab in your broker platform, Select the scrip, Select the expiry, choose if you want to buy or sell, enter price and submit. Basically no different than cash segment except basic changes as mentioned above.
Trading in futures is very risky and can also be very rewarding. Taking the case of Reliance futures again.. Assume you buy a future at 1150. If price moves to 1155 then you make a profit of 5*500=2500/-( 5 rs move multiplied by lot size). Same way the loss will be 2500/- if price falls to 1145/-.
If you ask me, I would suggest you practice first in the cash segment with small qty till you learn to figure out how to work the trend. Once you start making money consistently, you can always switch to futures. Profits/losses can be big in Futures trading. It’s a double edged sword which if used the wrong way will kill you very quickly. If it doesn’t kill you, I promise you can lose your chaddi, baniyan, lungi, bra and kaccha very very quickly. So be careful.
I cant think of anything more to type at 1 AM. sorry boss. Maybe other members can help here!
EDIT: Itna accha aur bada essay kabhi school mein likta tho....
Futures and options are derivative Instruments. They are called "derivatives" because they derive their value from some underlying asset. Let me use Reliance as an example. Reliance futures is the derivative instrument here and it will derive its value from the underlying value of Reliance shares i.e share traded in the cash segment. Cash Segment rates are also called spot rates.
I will try not to talk about options as it a bit complicated and lengthy to explain.
Futures are traded in a different segment called the F&O segment. Futures are called as futures because they are contracts that are valid only until a predetermined future date. They all come with an expiry date. For ex A Reliance 27oct2018 contract means that this futures contract will expire on the 27-dec-2018. ( In our markets, settlement/expiry happens on the last thursday of every month. 27th dec is the last thursday in dec 2018)
Trading Futures is very similar to trading shares except that unlike shares where you can buy any quantity, future contracts have a pre-decided quantity which is established by the exchanges. This is called as a lot. Example, Reliance futures has a lot size of 500 i.e 500 units/shares that make one lot. You have to buy/sell in multiples of 1 lot.
Futures, as mentioned derive their value from the underlying. They are traded at a premium or discount or at par with the underlying depending on the sentiment in the market. If traders are very bullish on Reliance, then they are willing to pay a higher premium. Example Reliance spot will be trading at 1150 and futures maybe trading at 1155. This premium depends on other factors as well. In bearish markets, you can notice future contracts trading at a discount to the spot rate. Sometimes at par with the spot rate.
The advantage of trading futures is that you have to pay only a margin amount to take a position. Ex Reliance is a 500 shares per lot. If you have to trade 500 units of Reliance in the cash market then you would need 500X1150= 575,000 (lets assume 1150 is the market price). But in the futures market you would have to pay only a margin of this amount. Say 20% margin on 575,000 = 1,15,000 rs. This margin requirement is also decided by the exchange and varies from stock to stock depending on SPAN(Standard portfolio of analysis of risk) and exposure margin.
Futures and options are primarily designed to be used as a hedging instruments and not as a speculative instrument. How is it supposed to work? Lets say you are an investor who has purchased 500 Reliance shares in cash segment (delivery buying) at 1000/-. The price moves up and is trading at 1150. For some reason you fear that Reliance stock will fall and your profits will be eroded. In order to hedge your loss, you can short sell one lot of Reliance futures at 1150. Lets assume that after 30 days the stock has falls back to 1000/- taking away your entire profit of 500*150=75,000/- ( 500 shares multiplied by 150 rs profits lost). However, your sell position in futures at 1150 is now trading at 1000/- thereby giving you a profit of 500*150=75000/-. As you can see your profits in the cash position were protected by the short sold position in the futures. On expiry day you can choose to let the contract expire or square it off and enter a fresh position.
Similarly, If the stock were to go up from 1150 to 1250, then you would be gaining 500*100=50000/- from your cash position but losing the same amount on the futures position. In both cases, you would have locked your profits of 150/- per share.
How to trade them? Just click on the futures tab in your broker platform, Select the scrip, Select the expiry, choose if you want to buy or sell, enter price and submit. Basically no different than cash segment except basic changes as mentioned above.
Trading in futures is very risky and can also be very rewarding. Taking the case of Reliance futures again.. Assume you buy a future at 1150. If price moves to 1155 then you make a profit of 5*500=2500/-( 5 rs move multiplied by lot size). Same way the loss will be 2500/- if price falls to 1145/-.
If you ask me, I would suggest you practice first in the cash segment with small qty till you learn to figure out how to work the trend. Once you start making money consistently, you can always switch to futures. Profits/losses can be big in Futures trading. It’s a double edged sword which if used the wrong way will kill you very quickly. If it doesn’t kill you, I promise you can lose your chaddi, baniyan, lungi, bra and kaccha very very quickly. So be careful.
I cant think of anything more to type at 1 AM. sorry boss. Maybe other members can help here!
EDIT: Itna accha aur bada essay kabhi school mein likta tho....
Very clear & informative post.Very nice explaination! aapney to sachhi F& O ki patshala khol li.Bahut acchey sey samjhaya! I have read your all posts, you have explained many economics & finance topics in lucid & understandable language.You have all qualities of a good teacher.Thanks for all your informative posts..
whenever you have time, write some detailed posts about trading, trading system, your method of trading, Price -action, S& R, how do you trade ?etc etc..anything which you think worth sharing ..please write detailed posts about them also
thanks a lot
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