Monday, May 13, 2013

Investing in Futures

                                     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. (
Check our performance for April Series:
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