Archive for the 'Futures Trading' category

Futures Trading

Aug 13 2011 Published by under Futures Trading

Futures trading is a lucrative opportunity in India given the numerous changes that the Indian government has brought about in the financial markets and the various initiatives taken at the central level in commodities exchanges.

You can start your futures trading as a business as well since it is a lucrative opportunity and needs very little start up capital. Futures trading is part of the derivatives market whereby all financial instruments which are available for trading are dependent on underlying assets. These can include commodities, stocks, market indices and so forth. Futures are contracts which can be traded in the market and are agreements between sellers and buyers to buy or sell a certain commodity or any other type of underlying asset at a pre determined price at a future date.

Futures trading is unlike stock trading whereby you become owners of actual stocks. Trading in futures indicates not actually owning or buying anything but predicting the direction in which the price of a stock or a commodity is going to move. Thus, sell or buy strategies do not signify actual physical transactions but the strategies to be adopted as per price movements.

Futures trading on the NSE NIFTY Index would involve buying futures contracts if the price would be going up while the sell strategy would be employed if an investor thought that the price of the index was going down. In such cases, no transactions are actually taking place. For futures trading, one does not need to pay anything apart from brokerage costs which are taken as a guarantee that, in case of losses incurred, one will pay up the damages.

Futures trading has several benefits. The main advantage is that, there is high leverage with such trading. If someone can employ the right strategies, one can make a profit from futures trading whether the market is bullish or bearish. One has to deposit a small amount of money while purchasing such contracts, know as margin money which is usually 10% of the entire cost. If cards are played right, one can sell as easily as one can buy and hence, such trading can prove highly profitable in a short while.

Futures trading can only go wrong if one does not employ the right strategies on time and the holding position is not closed before the delivery date. If such a situation occurs, one will be left having to pay for the entire asset as specified in the contract and at the agreed price, whether he or she is interested in the goods or not.

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Gold Futures

Aug 13 2011 Published by under Futures Trading

When in the derivatives market, one of the most popular underlying assets is gold. It is a significant asset in the world market which is by itself traded highly. The derivatives which are based on gold such as gold futures are traded independently but are dependent on the world price movements of gold.

The price of gold is dependent on many factors, and hence is difficult to predict. In India, there has been a tradition to hoard and stock gold physically than going for bank deposits. Many would even trade in gold physically. Now with the advent of gold futures, one can take advantage of the various price movements of gold without having to physically hoard gold themselves.

Gold FuturesWhen it comes to gold futures, these can be highly lucrative investments but one must also be aware of the high risks involved when things go wrong. For instance, if the going price of gold is Rs. 6000 for 10 grams, if you invest 6 lakhs, you can obtain one kilogram of gold. After three months, if the price of gold becomes Rs. 6500 for ten grams, a person might decide to sell the gold and the profit made is Rs. 50,000 for one kilogram. However, for such physical transactions, there are additional costs such as cost of storage, financing, transaction commissions and taxes to be paid.

If on the other hand, you were to invest the same six lakhs in the futures market, with the same price movements, let’s see how it works out.

In the futures market, if you are going to buy gold futures, you can hold on to such contracts for a maximum of four months. For trading in gold futures, on needs to open a trading account with a brokerage house. Margin money needs to be deposited which is specified by the lot size or the minimum amount of the commodity that one has to buy on such a contract. If the minimum lot size on a gold futures is 1 kg, usually, one needs to pay around 5% margin money for such contracts and a brokerage fee of 0.1 to 0.25%. Thus, if gold is being priced at Rs. 6050 for every 10 grams, then the price comes to Rs. 32000. Hence, if you have six lakhs, you can buy around 19 lots of such gold futures contracts. Now, following a bullish view point, if at the end of three months, the spot price of gold goes up to Rs. 6500 per ten grams, then your profit is seventeen times the profit you would have made by hoarding and transacting with actual gold.

However, the risks in case of losses are also magnified and hence, the advice and guidance of market experts are necessary before investing in the highly lucrative avenue of gold futures.

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Futures Contract

Aug 12 2011 Published by under Futures Trading

If we are talking about futures contract, you must be dappling with the derivatives market. This is a lucrative market to play with, albeit a risky one. But if played with the proper strategies, the derivatives market can prove profitable in a short span of time.

Futures are a form of derivatives. A futures contract is a contract that can be traded on futures markets, with the intention of buying or selling underlying instruments at a certain date in the future at a specific price. The date which is fixed is known as the delivery date or the final settlement date. The futures price which is set is also known as the pre-set price. Price of the underlying asset on the due date of delivery is known as the settlement price.

Such a contract comes with the actual obligation to buy or sell, contrary to options, which only provide the right to buy and sell and not the actual obligation. In a futures contract, on the other hand, both parties are required to satisfy the conditions of the contract on the settlement date.

Futures ContractIf the underlying asset being traded is a commodity, then the delivery of the physical goods has to take place on the delivery date. In case of stock futures as are done in India, cash settlement occurs whereby the one who makes a loss transfers cash to the one making the profit. In many instances, one can exit or close their position in a futures contract before the delivery date by either buying back a short position or selling a long hand which closes out the futures position and the obligations of the contract are also closed.

Such contracts are essentially forward contracts since the agreement is to buy or sell at a pre determined price for a point in time in future. There are various features of such future contracts. Standardization of a contract as to having the details specified is a characteristic of futures contract. For instance, the underlying asset and the category it falls into, whether commodities such as crude oil, gold or real estate or stocks, market indices and others. The type of settlement to be made is also specified in the contract. From cash to physical goods delivery, the terms are to be specified in the contract. The amount and units of the asset, the currency in which the contract is made, grade of deliverables, delivery month, last trading date are other details that are required to be mentioned in a trading contract.

Futures contracts guidelines are laid down by the Securities & Exchange Board of India (SEBI) and it is vigilant against fraudulent practices being performed in the futures market.

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Futures Contract

Aug 12 2011 Published by under Futures Trading

Futures contracts are agreements which are made and can be traded in commodities exchanges. Such an exchange usually takes place when there are two parties present who are willing to buy or sell a certain commodity at a defined future time at a price fixed from before.

The futures contract is a guarantee to the seller that the buyer will buy the commodity at the fixed price at the future date as determined. Such an exchange has certain specified conditions which are mentioned in the futures contract.

There is considerable risk involved for both parties in a futures contract. While the seller has a risk that he or she might be selling the commodity at a price lower than the market price at the future date as fixed, the buyer faces the risk of having to pay higher than market value which has depreciated for the commodity he has bought and has agreed to pay a certain price for in the future date.

Futures ContractFutures contracts are forward contracts by nature since they represent a future transaction at a specified date. Clearing houses have the responsibility to guarantee the transactions while there are overseeing agencies which regulate such transactions.

In such cases hedging is done to reduce the price risk that can occur with futures contracts. Such contracts are used as tools for hedging by commercial enterprises so that the risk of expected sale and purchase of underlying assets is reduced.

There are several advantages which futures contracts can bring about. When price movements are favorable, producers are assured of the greatest return for their produce. It also helps them to protect their losses when the price movements are negative. Premium charges are also not associated with futures contracts.

There are some disadvantages to consider regarding futures contracts. These can be subject to margin calls, can be disadvantageous when the price moves higher than the terms on the contract. Again, options are contracts on underlying futures contracts while futures contracts need a person to take up the obligation to buy or sell the underlying asset at the agreed price and date.

Thus, futures contracts in commodities markets are vital for producers to be assured of a certain price for their produce in uncertain market conditions. The buyers on the other hand, can also stand to gain when the price movements are higher than the terms on futures contracts. Thus, this form of derivatives trading concerns transactions in the commodities market mostly.

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Futures Options Trading

Aug 02 2011 Published by under Futures and Options, Futures Trading

If you are planning to dabble in futures and options trading, then you need to be clear of how these derivatives instruments work and how to play such markets. Derivatives instruments are sophisticated trading strategies and need to be worked upon carefully. Working with futures and options trading involves greater risk, higher leverage and sometimes, higher volatility and hence, one needs to have a stomach for such risk taking.

Options can provide a hedge for you to protect yourself from the falls that stocks and indices experience and futures, when invested in small amounts, is a great way to diversify your portfolio.

Again, futures and options trading means that investors have to be more proactive. Whilst stocks can be bought and held for years, these instruments have defined time limits within which the appropriate actions need to be taken.

A derivative instrument does not translate to ownership of the underlying asset but a promise to convey the same. For instance, futures and options. An option can be a call option on a stock which means one can exercise his or her right to buy the asset if they want to. On the other hand, futures are contracts formed to buy or sell a commodity or any other asset at a pre determined price at a future date.

Futures trading involves taking on the actual obligation to buy or sell a certain commodity or asset at a fixed price at a future date. These types of contracts are traded in the market by speculators who do not wish to obtain actual delivery of the goods but opt for cash settlement and close positions before the delivery date of the contract expires.

Options trading offers one the option to witness price movements of an underlying asset and decide on whether to exercise one’s right to sell or buy. Thus, the commitment to purchase large amounts of stock is not present. These can be used to hedge one’s stock positions, purchase or sell stocks at prices higher than current market rates and so on.

Thus, futures and options trading have several facts and one needs to be knowledgeable of all the associated strategies to take advantage of these high leveraged future markets. Derivatives trading is comparatively new in India but with the wide presence of associated exchanges and standardized trading procedures, one can take advantage of these markets and add such instruments to one’s portfolio.

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MCX Tips

Aug 02 2011 Published by under Futures and Options, Futures Trading

If you are looking for MCX tips, then you are probably looking at tips to maximize your earnings from playing the commodities market. Intraday trading in the commodities market is one way of buying and selling of such derivatives and exiting before the day end. Usually by the end of the day, there is no change in the volume of stocks held though there has been intraday trading. This is possible only because of the differences between sale and purchase prices due to which losses or profits occur.

Day trading is done in commodities which help one to improve one’s success rates and increase their profits. However, much depends on luck and market patterns. The usual strategy employed in intraday trading is to get in the market early, find out the trend of the derivatives and the pattern the prices are likely to follow and accordingly, execute strategies.

MCX TipsThere are many intraday commodities trading advice to be had. Someone who is disciplined and follows the trends in the market and has enough of capital, can expect to earn good returns from the commodity exchange. While one can earn returns as high as 25 to 50% in a year, there are costs to be borne such as slippage and commissions.

An intraday trader essentially buys stocks which fluctuate more than the average stock prices. This leads to the prices going up further and allows the day trader to make money. However, there occur many volatile situations due to which the price movements of derivatives can fluctuate and dip suddenly. To be able to work commodity trading to one’s advantage, there are some measures to be taken. For instance, one should have a well funded account. The more money you have to trade, the more chances of emerging successful from such trading. Also, one should not over leverage when using their money. Usually people take on extra risks with low margins in the morning at the beginning of a trading day but this strategy is not always successful. Also, commodities are assets whose price trends are long term and hence, this is not a market to make money quickly. Hence, one needs to learn to be patient, to diversify one’s portfolio to mitigate risks and choose their derivatives wisely.

A thorough knowledge of the demand and supply pattern of the underlying assets of your derivatives is the key to understanding how to trade with these derivatives. Thus, these and many more MCX tips can be found for investors who are looking to make profits in the long run from this market.

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