Future trading in india
Risk-return profile is symmetric in case of single stock futures whereas in case of stock options payoff is asymmetric. Also, the price of stock futures is affected mainly by the prices of the underlying stock whereas in case of stock options, volatility of the underlying stock affect the price along with the prices of the underlying stock.
What are Stock Futures? How are Stock Futures priced? What are the opportunities offered by Stock Futures? How are Stock Futures settled? Can I square up my position? When am I required to pay initial margin to my broker? Do I have to pay mark-to-market margin? What are the profits and losses in case of a Stock Futures position? Most of the times on 3rd month expiry future you may see very less trading volumes.
But on Nifty index contract or on other index contract you may see good trading volumes even on 3rd month expiry future also. You can also buy and sell or sell and buy future contract on the same day of any expiry month. This is called as day trading or intraday in futures. Selling future contract before buying is called short selling.
Short selling is allowed in futures trading. Major Advantages of Futures Trading over Stock Trading 1 Margin is available - In future trading you get margin to buy but can hold only up to maximum of 3 months , while in stock trading you must have that much of amount in your account to buy. But limitation for this is your expiry period. Means if you bought future of one month expiry then you have to square off within that one month likewise you can buy maximum of three months expiry.
This is not possible in stocks. You can short sell futures and can cover off within your expiry period. For example - If expiry period of your future contract is of 1 month then you have time frame of one month to cover off your order like wise if your future expiry period is of two months then you have time frame of two months and this continues till three months and not more then three months.
In short selling of futures also you get margin as you get in buying of futures. Disadvantages of Future Trading over Stock Trading 1 Limitation on holding - If you buy or sell a future contract then you have limitation of time frame to square off your position before expiry date.
For example - If you buy or sell future contract of one month expiry period then you have to square off your position before your expiry date of that month, so in this example you got one month period.
So likewise if you go for two month expiry period then you get 2 months and if you go for three month expiry then you will get 3 month expiry period to square off your position. You can only do on listed stocks on Nifty and Jr. For example - suppose this is month of October then you have to buy till maximum month of December expiry and you have to sell it within last Thursday of December month.
You can sell anytime between these periods. Lot size group of stocks in one future contract varies from future to future contract.
For example Reliance Industries future lot size has quantities of shares while a Tata Consultancy service has shares. The margin in other words price of one lot size varies on daily basis based on its stocks closing price. Future trading can be done on selected stocks listed under Nifty and Jr. Nifty and not on all stocks. The price of future contract is determined by its underlying stock.