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.
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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