Newbie in Futures

#1
Hi

I have not traded futures before. All i know is its theory concept. I have an Geojit trading account.

Many are talking about futures and how we can hedge them to minimize our loss but i am not able to understand many things :

1. How exactly one buys / sells futures? (Especially in Geojit panel).


2. Can we sell futures before its expiry


3. Where future shares will go after its expiry. Lets say there
are less buyers than future expiry shares what will happen then?


4. I have read that no delivery will be their in case of Indian futures and options only difference cash is credited/debited. Is it true ?


5. Can we select any price future.

I mean let's say stock A is trading at 100 Rs. Lets assume 2 cases

a. I predict that after 1 week it will got to 150 rs
b. I predict that after 1 week it will close at 80 rs

How to make profits in these cases using futures ?


6. Can futures be traded using margin facility or it requires cash.


7. I know future brokerage is based on lots. Geojit says
< 9 cr 75 (current) for 1 lot.
Now what exactly it means?


8. I know futures is kind of risky but let's take example of Pipavav Shipyard. I gained an profit of 14% on delivery itself since I bought at lows last week (after LIC Housing scam broke) Even a Tom Dick and Harry can make it out that the share price will rise within one week and its rumors that's affecting the price currently. :D.

So I am wondering any smart trader (who is willing to take risk) can easily make a chuck of money by using futures of these share right ? It's not as risky as it sounds I think :).

Sorry for asking too many questions, but I am a naive trader with little experience :).
 
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#5
Hi

I have not traded futures before. All i know is its theory concept. I have an Geojit trading account.

Many are talking about futures and how we can hedge them to minimize our loss but i am not able to understand many things :

1. How exactly one buys / sells futures? (Especially in Geojit panel).
Just add future script in market watch and buy / sell the way you do for other shares.

2. Can we sell futures before its expiry
Yes, Expiry is the date on which this derivative expires.
You have to make position (Long: Buy or Short: Sell) before expiry and you can square-off the position any time before expiry or if you don't square off, it will be cash settled.
Cash settlement means: on expiry the close rate will be declared and the difference between you buy / sell will be given / taken in cash (no need to give / take delivery)

3. Where future shares will go after its expiry. Lets say there are less buyers than future expiry shares what will happen then?
Future is derivative i.e. the value is derived from underlying (in this case shares in cash market).
Nothing like future share exists.
View this term "Open Position / Interest" from the link.

4. I have read that no delivery will be their in case of Indian futures and options only difference cash is credited/debited. Is it true ?
Yes, Indian market is currently cash settled, in many other countries you have an option for cash or delivery settlement.

5. Can we select any price future.

I mean let's say stock A is trading at 100 Rs. Lets assume 2 cases

a. I predict that after 1 week it will got to 150 rs
b. I predict that after 1 week it will close at 80 rs

How to make profits in these cases using futures ?
If you predict price to go up you make LONG POSITION (Buy).
If you predict price to go down you make SHORT POSITION (Sell).

6. Can futures be traded using margin facility or it requires cash.
Yes, If you have any holding in you demat a/c then your broker will provide margin facility against the shares.
But daily price movement has to be cash settled.

7. I know future brokerage is based on lots. Geojit says
< 9 cr 75 (current) for 1 lot.
Now what exactly it means?
The trading in futures is done in multiple of one lot (not one share). The lot size varies for various shares depending on their price. Example: for SCI lot size is 2000 shares, you can trade only in multiple of 2000.

8. I know futures is kind of risky but let's take example of Pipavav Shipyard. I gained an profit of 14% on delivery itself since I bought at lows last week (after LIC Housing scam broke) Even a Tom Dick and Harry can make it out that the share price will rise within one week and its rumors that's affecting the price currently. :D.

So I am wondering any smart trader (who is willing to take risk) can easily make a chuck of money by using futures of these share right ? It's not as risky as it sounds I think :).
No one knows where the price will go in future.
Don't take it very easy. It's really very risky.
 
#6
Thanks for the reply ashish_jain11 :)

I am now able to see f&O in geojit :)
Geojit charges 75 per lot trade. If we wait till expiry 35rs will be charged during expiry sell off. Otherwise 75rs per lot sell before expiry

So around 150 rs charges per lot. + i am sure there will be other charges as well. Is it better/satisfactory brokerage charges ?

And many times futures will have difference with the current share price right ? Who decides the price at expiry. May be lets say nifty is down by 200 points on expiry date but all nifty futures participants dont want to sell it at all at 200 points down. Will the exchange square off future value with current scrip value at expiry ?

And in many threads i have seen pro's taking like "Its easy to make 300 points nifty in a month" something like that. What it means ?
 
#7
Geojit charges 75 per lot trade. If we wait till expiry 35rs will be charged during expiry sell off. Otherwise 75rs per lot sell before expiry

So around 150 rs charges per lot. + i am sure there will be other charges as well. Is it better/satisfactory brokerage charges ?
Although, there must me cheaper broker available, the charges are reasonable.
My broker charges me Rs 0.02 (i.e. 2 paisa).
For an average size of future of 3lac, it comes to be Rs. 60/-.
In additional to brokerage there are following charges:
Regulatory Charges;
Securities Transaction Tax;
Service Tax on Brokerage &
Stamp Duty Charges.

And many times futures will have difference with the current share price right ? Who decides the price at expiry. May be lets say nifty is down by 200 points on expiry date but all nifty futures participants dont want to sell it at all at 200 points down. Will the exchange square off future value with current scrip value at expiry ?

And in many threads i have seen pro's taking like "Its easy to make 300 points nifty in a month" something like that. What it means ?
In commodity markets it is very usual, that there is a difference in spot price and future price even on the expiry, but in Indian Stock market the price in cash market converge with the future price on expiry.
The closing price is determined by exchange after taking average of price in cash market for last few trading minutes.

About 300 Nifty point in a month.
If it's that easy, I would stop all my business and start doing this!
 
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#8
Although, there must me cheaper broker available, the charges are reasonable.
My broker charges me Rs 0.02 (i.e. 2 paisa).
For an average size of future of 3lac, it comes to be Rs. 60/-.
In additional to brokerage there are following charges:
Regulatory Charges;
Securities Transaction Tax;
Service Tax on Brokerage &
Stamp Duty Charges.



In commodity markets it is very usual, that there is a difference in spot price and future price even on the expiry, but in Indian Stock market the price in cash market converge with the future price on expiry.
The closing price is determined by exchange after taking average of price in cash market for last few trading minutes.

About 300 Nifty point in a month.
If it's that easy, I would stop all my business and start doing this!
Thanks for the reply

I think i have understood almost entire concept of Futures :)

Any important points/things i am missing about futures ashish_jain11 ?
Or any thing that any beginner in futures will misunderstand normally that one needs to be careful of ?
 
#9
Thanks for the reply

I think i have understood almost entire concept of Futures :)

Any important points/things i am missing about futures ashish_jain11 ?
Or any thing that any beginner in futures will misunderstand normally that one needs to be careful of ?
Future is a good toll for Hedging and Arbitrage, but normally / mostly it is used for speculation.
If you want to play in F&O, start your position with strict stop loss, be prepared to loose a certain money.
 
#10
If futures are based on an underlying, why is there a price difference between the price in the cash market and the futures? When I am writing this, the price for LT in the cash market is 1520, while that in the futures segment is 1528. Does this mean the price in the cash segment could go up?
 
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