Friday, January 21, 2011

Futures Trading In Indian Stock Market - Part III

Question:  How does expiry of Futures contract affect the Trade?

Answer: In this example you bought January Futures contract of stock “A”  say on January 6th and have not squared up [closed the trade by selling the shares] till the end of the month. On 27th January, your Futures contract will be compulsorily squared off at the cash market price of stock “A” on that particular day which may or may not be in your favour and your profit will be paid out or deducted from your account as the case may be.

 Here one thing more has to be kept in mind that the Futures Contract position is settled everyday and so profit or loss amount is adjusted everyday accordingly and so on the expiry day the final adjustment of the profit or loss is done and that day the final net profit or loss can be calculated on a particular traded contract.

Question:  In addition to leverage, is there any other benefit of Futures Trading ?

Answer:  An excellent advantage of Futures Contract is that you can sell Futures even before buying for which the term used is SHORT SELL. This can be understood with our example of Stock “A” futures contract that even if you do not have any shares of company “A” you can still sell them without buying. So this means that if you expect the price of the stock “A” to go down from Rs. 280 to Rs. 240 in some days you can SHORT them and if your trade is a winner then you will keep the profit of Rs. 40 per share by squaring up [closing] your trade by buying back the shares. Thus, you can even benefit from a price fall of the stock “A”. This is not possible in the Cash market where you have to buy first and sell second called as LONG TRADE where as in Futures you can even sell first and buy second called as SHORT SELL TRADE.

Read Part II

Please Read Disclaimer:

All the opinions expressed on this blog are for educational purpose only.The strategies mentioned on this blog may not be suitable for you. Material presented here does not take into account your particular financial situation, investment objectives and is not intended as recommendations appropriate for you. You must make an independent decision regarding strategies mentioned on this blog.

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Required US Government Disclaimer & CTFC Rule 4.41

Futures trading contains substantial risk and is not suitable for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or lifestyle. Only consider risk capital that should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. CTFC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS SUCH AS LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All trades, patterns, charts, systems, etc., discussed in this website or advertisement are for illustrative purposes only and not construed as specific advisory recommendations. All ideas and materials presented herein are for information and educational purposes only. No system or trading methodology has ever been developed that can guarantee profits or prevent losses. The testimonials and examples used herein are exceptional results which do not apply to average people and are not intended to represent or guarantee that anyone will achieve the same or similar results. Trades placed on the reliance of Trend Methods systems are taken at your own risk for your own account. This is not an offer to buy or sell futures interests.