Are you looking for stock tips for derivatives trading? Derivatives trading is a newer concept that the equity market trading and hence some prior knowledge is required before you delve into such high leveraged, high risk markets.
Derivatives are financial instruments which, as per their name, derive their value from an underlying asset which can be a commodity, stocks, market index and so forth. The two common forms of derivatives are futures and options. While futures contracts are agreements between buyers and sellers about an asset or a commodity whose price is fixed at a future date, options are contracts formed on underlying assets which provide the buyer the right to buy or sell the asset as and when he or she chooses to but not the actual obligation to carry out the process.
There are various strategies to be employed if you want to be successful at derivatives trading. The stocks traded as futures are usually bought in lots. Then again, future trading occurs as a contract which comes with a stipulated time frame signifying that all transactions have to be done within that time frame. The number of stocks that come with a futures contract can vary and the price of a lot is determined by the number of stocks in it multiplied by the price of the current market prices of the stocks.
A major stock tip is to trade in bulk. This is possible due to the small amount required to either buy futures contracts or options. In case of futures contracts, one needs to pay 20 to 30% of the stock price which is known as margin money. Similarly in case of options, the strike price of such a contract needs to be paid as a premium to hold such instruments.
Another viable stock tip to explore is the short selling tactic. That means that, in derivatives trading, one can sell a futures contract and then buy it back within the expiry date. When a stock is overvalued and is sure to fall in the short term future, this is the method one can employ to gain profits.
Since the brokerage fees are less in derivatives trading than equity trading, it is financially more viable to enter such markets. The brokerage is calculated on the basis of the unit of the lot and not on the unit of stocks.
The other tips urge investors to be aware of the large amounts involved in futures trading and hence, the risks are also large. Since these contracts come in short time frames, they need to be actioned upon faster than equity markets. Hence, you need to be more vigilant, have a greater appetite for risks if you want to play such markets.