Futures and options are the part of derivative and mostly it
is used for hedging by institutional investors.In order to initiate trading in
FUTURES you have to understand how it works and how can get profit with your
own analysis and experience.
Options and futures are both financial products investors can use to make money
or to hedge current investments. Both an option and a future allow an investor
to buy an investment at a specific price by a specific date. But the markets
for these two products are very different in how they work and how risky they
are to the investor.
Here are the few key things that you can draw your attention, if you want to
embark trading in futures contract of the Stocks or Index.
Step 1: Understand
how futures work — and the risks
The investor may instead decide to buy a futures contract on
RELIANCE. One futures contract has as its underlying asset 250 shares of
reliance. This means the buyer is obligated to accept 250 shares of reliance
from the seller on the delivery date specified in the futures contract.
Assuming the trader has no interest in actually owning the reliance, the
contract will be sold before the delivery date or rolled over to a new futures
contract.
RISK:
As the price of RELIANCE rises or falls, the amount of gain or loss is credited
or debited to the investor's trading account at the end of each trading day. If
the price of Reliance in the market falls below the contract price the buyer
agreed to, the futures buyer is still obligated to pay the seller the higher
contract price on the delivery date.Keep note that if it fall then whatever amount it give fall
that will be multiplied by 1 lot that includes 250 shares, hence you have to be
prepare to bear that much loss that is the crucial downside risk in futures.
Step 2: Pick trading
strategy from your own or from any research analyst.
A best practice for any trade is to understand the risks and
price targets prior to entry or exit in the underlying asset. Because of the
increased risks of trading futures, contracts should be carefully monitored. In
futures entry and exit point matters the most. This is where the different
order types to buy and sell may come into play and help manage the trade. A
limit order offers control over the entry and exit prices. If you know the
levels in which to enter and exit a trade these limit orders, as well as a stop
loss can help traders execute their strategies more efficiently. You should
subscribe or associate yourself with trading research analyst of the Indian
stock market.
It is very profitable, if you know how to manage your risk.
Futures can be a very good way to make money but it is also number one reason
to lose money because of Leverage. It can make you rich quickly but can make
you poor even quicker.
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