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Futures trading is a type of contract-based trading in which two parties, such as a buyer and a seller, make a deal. Both sides can agree on a price at which they will buy and sell the underlying assets. Stocks or other financial securities can be the underlying asset. Futures end on a certain date. Before the futures contract's end date, both parties need to make their trade. Stock exchanges keep an eye on every contract.
A futures contract is for traders who know what they're doing. You can use futures to protect your portfolio and take advantage of opportunities. Open an F&O account with Share India to start trading futures. Share India will give you live updates and good insights.
When you trade futures, take note of the expiry date and the contract size. In India, the expiration date for derivative investments like futures is the last Thursday of expiry month. It’s also worth noting in futures trading you can trade futures contracts having a near month expiry, the next month expiry, or far month expiry. In derivative trading, one must also be aware of the contract size or lot size. A single futures lot may contain multiple units of the underlying assets. The number of units per lot depends on the underlying asset.
Since derivative trading in the share market involves trading lots containing multiple units of the underlying assets, unlike the cash market where you can trade individual units of the assets, futures trading has a higher entry barrier. However, that said as a futures trader, you take a future position by paying only a portion of the entire transaction called margin. You pay the remaining amount when you settle the contract during expiry.
If you wish to become a practitioner of derivatives trading in India, it is also essential that you know how futures contracts are settled. In the case of index futures (Nifty or Bank futures), the difference is settled in cash. However, in the case of stock futures, the contract is settled by delivering or accepting the delivery of the stock.
Futures trading can be a great way to create wealth if you understand the derivative trading and trade responsibly.
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Go to the Share India site, Click on Open Demat account, and then enter your email & phone number.
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We are a company that wants to change the way millennials trade. Share India believes in democratizing its trading prowess and make the platform available to all.
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Read MoreHedge Your Investment Portfolio
Trade futures to hedge large long positions in specific stocks if you foresee a potential decline in the stock’s price.
High Liquidity
High liquidity in the futures markets allows you to easily buy and sell futures contracts.
Diversification
Futures trading can be a viable approach to diversify your investment portfolio.
Leverage
Use leverage responsibly and take larger positions by deploying smaller chunks of capital.
Predetermined Price & Expiry
When you trade a futures contract, you are obliged to transact the underlying asset on the fixed date and price.
Deposit the required margin
Trading futures requires you to deposit a margin with the broker, which is a portion of the total transaction amount, regardless of whether you are buying or selling.
Take a long or short position
Take a long position or buy the futures contract if you believe the price of the underlying asset will see an appreciation. Derivatives in the stock market work on the research & decisions of buying and selling contracts, so if you sell the contract you believe the price of the underlying asset will decline.
Settle the contract or close the position before expiry
On the expiry date, you settle the contract by buying or selling the underlying asset, in the case of stock futures, or settling it in cash in the case of index futures. Or, if you are satisfied with your profits, you can close your position before the expiry. Derivatives investment can be risky if you are a beginner or unaware about the risk of derivative trading.
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The open contract is a futures contract that you bought that is still not squared off or has not yet expired.
Futures contracts need to settle before the expiration date to avoid penalties. Therefore, executing the futures contract before the expiration date is advisable.
The contract value refers to the current price of the futures contract multiplied by the lot size of the contract. Since the current price of the futures contract keeps changing, the value also fluctuates accordingly.
To trade in a futures contract, you need to have a trading account, and you need to place a request through your broker for the F&O trading. You need to find the ideal futures trade, place your bid, and pay a margin amount, which will be the percentage of the contract value. After the process match, you can exchange the trade and match the requirement with available buyers & sellers.
To trade in a futures contract involves margin payment. The volume of margin depends upon the stake size. For a general example, most brokers ask for at least 10 percent of the upfront margin before placing a trade.
Futures is a financial contract but obligatory. The buyer & seller of a futures contract obliges to make the trade of the underlying assets within the expiry date of the futures contract.
We at Share India aim at transforming the millennial trading experience through a cutting-edge fintech platform. We strive to provide the best value for money trading solutions by incorporating Artificial Intelligence and Machine Learning technology.
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