Investing in Futures
In
equity market we invest by purchasing shares of certain company. The money
grows when the the price of the share grows and we book profit by selling these
shares. This is called as cash segment of equity market. Most of us know this.
There
are more instruments in equity market where we can invest or 'trade' for
earning profit. These instruments are usually derived from a Company's Stock
(Share) as a base instrument. These are called as Derivative and the segment is
called as derivative segment. The types of derivatives are Futures and
Options.
Lets
talk about futures for the time being. To put it simply, in futures, the
investors or traders predict the future price of a security (share).
The
Futures are traded in lots. The volume (No. of shares) in One Lot are so
adjusted that the price of one lot comes
between 2.25 L to 3 L (approx). But while trading in Futures we do
not have to pay all the amount (Price of a lot). Instead we pay a margin to the
broker. For instance in May 213 series one lot of TCS is of 250 shares. Price
of TCS is currently at 1470. So the price of lot comes to 250*1470= 367500. But
the broker ask us a margin of around 62000. It means we buy share worth
Rs367500 in 62000. The profit or is to
be adjusted on daily basis.
The
futures trade in 3 monthly series and the series expires on last Thursday of
the month. If we are holding a position, we have to compulsorily square off the
position on the day of expiry.
You
can earn money in rising market as well as falling market. How? We know that we
can buy futures (consider a lot of shares) and sell it at higher price to earn
profit. But the 'news' is that we can 'Sell" futures at a higher price
(before buying it), and later 'Buy' (square off) the futures at a lower price,
to earn profit.
Now,
why do we trade in futures?
The
beauty is that it offers two big advantages over Cash Market-
1.
For buying one lot of Futures, you just have to pay 15-20% of total cost of the
lot.
2.
You can earn money in rising market as well as falling market.
Based
on our Research and Analysis we invest either on Long (Buy) or Short (Sell)
side to earn profit for our customers.
The
risk reward ratio is quite favorable in Futures, though there is risk
involved, if the discipline is not followed.
I tried
to make it as simple as possible. Hope I am clear in what I wanted to convey.
Please
get back on anything that I can help you on. (bonvistaplanners@gmail.com)
Check our performance for April Series: