In this article I will share the information about how to trade Equity Futures and Options in few easy steps. They are special contracts whose value derives from an underlying security. NIFTY or a stock i. If, during the course of the contract life, the price moves in traders favor rises in case you have a buy position or falls in case you have a sell position , trader makes profit.

In case the price movement is adverse, trader incurs losses. In the Futures and Options segment at NSE and BSE; trading is available in mainly two types of contracts:. This includes; CNX Nifty Index, CNX IT index, Bank Nifty Index and Nifty Midcap 50 index.

The stock exchange defines the characteristics of the futures contract such as the underlying security, market lot, and the maturity date of the contract. Only those stocks, which meet the criteria on liquidity and volume, have been considered for futures trading.

How to Buy & Sell Futures Contracts ? | Kotak Securities®

For example; if you buy 1 lot of NIFTY future on 20th Aug and decide to sell it on 24th Aug ; you actually square off your future position. Yes, you can sell the contract or square off the open position anytime before the expiry date.

MTM goes until the open position is closed square off or sell. The next question and an example in the later part of this article will explain you MTM process in detail. At the end of every trading day; the open future contracts are automatically 'marked to market' to the daily settlement price. This means; the profits or losses are calculated based on the difference between the previous day and the current day's settlement price. In other words; MTM means every day the settlement of open futures position takes place at the closing price of the day.

The base price of today is compared with the closing price of previous day and difference is cash settled. The 3 month trading cycle includes the near month one , the next month two and the far month three.

If the last Thursday is a trading holiday, then the expiry day is the previous trading day. For example; in the above table; 28th Aug is the expiry of this month's contract. The contract life of this future contract is from today to 28th Aug New contracts are introduced on the trading day following the expiry of the near month contracts.

The new contracts are introduced for three month duration. This way, at any point in time, there will be 3 contracts available for trading in the market for each security i. Futures contracts expire on the last Thursday of the expiry month. If the last Thursday is a trading holiday, the contracts expire on the previous trading day.

To start trading in futures contract, you are required to place a certain percentage of the total contract as margin money. Margin is also known as a minimum down-payment or collateral for trading in future. Normally index futures have less margin than the stock futures due to comparatively less volatile in nature. It depends on the volatility in the market, script price and volume of trade.

In that scenario, trader will have to allocate additional funds to continue with open position. Otherwise broker can sell square off the future contract because of insufficient margin.

Nifty Options Trading Strategy on How to Multiply Your Trading Capital

Thus It is advisable to keep higher allocation to safeguard the open position from such events. Margin positions can even be converted to delivery if you have the requisite trading limits in case of buy positions and required number of shares in your demat in case of sell position.

There is no such facility available in case of futures position, since all futures transactions are cash settled as per the current regulations. If you wish to convert your future positions into delivery position, you will have to first square off your transaction in future market and then take cash position in cash market.

Another important difference is the availability of even index contracts in futures trading. You can visit NSE or BSE websites to check the available future contracts for indexes as well as securities. In this example; we will buy 1 lot of NIFTY 50 shares. The lot size is different from contract to contract. Below screenshot shows that we are placing an order to by 1 lot 50 shares of NIFTY Futures at the price of Rs You hold the equity future contract until you sell it or it expires on predefined expiry day in our case its 25th Sept Let's check few useful fields in this.

Below is the contract note received from broker on Day 1. The next contract note will be send to you on the day you sell the contract. Brokers also share the ledger detail with the client with a 'client account ledger detail' document. This document provides you detail about all the financial transaction done by broker on day 1.

But on day 2 the market is closed as its Saturday. Note that the position is now name as 'Brought Forward'. This is the first trading day Monday for NIFTY future and it went up around 50 points. Now let's check the accounting for Day Similar to previous day, we decided to carry forward the future contract. The price went up by Rs Once again we decided to carry forward the contract. The price remain flat and actually went down by Rs 2. ProStocks, an online stock broker based in Mumbai is among the popular broker.

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User Comment Post New Message. But I have a doubt. If you check out the zerodha brokerage calculator since you are using zerodha, Buy - How did u get How Marin Maintenance is calculated?

Beginners Guide to Futures Trading in India

In the above example on step 1 you brought 1 lot 50 shares of NIFTY Futures at the price of Rs So how much you loose. Spectacular, Only an learned team or a person could write in so simple words about the complex thing.

Wonderfully laid-out with good examples. Thank you sir, for sharing this excellent and valuable information. What is the SAFE Margin money to keep with Broker? Hi Mr Sathi, 1. Broker doesn''t charge anything to carry forward your derivatives positions to next day. So for example, you hold the contract for 7 trading days, you will pay Rs 20 brokerage on the day 1 buy transaction and Rs 20 on day 8 sell transaction. The margin changes every day based on where the market stands. If market falls significantly the margin increases.

You have to keep a close eye on the daily margin report. I have just read and understand this topic. Sir, Can you please explain option trading also, like you explain future trading in this article with pictures? Also, something on strike prices for Buy and Put in options.

Cleared many doubts in my first reading only. Please explain ''SPAN Margin'' and ''Exposure Margin'' in ''Client Account Ledger Details'' at DAY1. I just have one doubt. In the illustration, on day 7, when the contract was sold at Or is it possible to sell the contract with next month''s price? No it doesnt mean that closing price was Suppose during market hours 1. You can buy or sell your positions at any time during the market hours.

Hope this cleara your doubt. Happy trading ; Keep minting money. Pl provide similar article on SME ipo and secondary market on SME scripts. Excellent explanation in neat and clean words with simple example to grasp easily. Looking forward for an article in option segment also. Thank you and if please send me an email consisting how strike price works in options segment. Cover all Key point which''s information must be req for 1st time doing trade in Market Thanks Lot Sir.

Excellent explanation for Beginners to professional. Please post a article about Option trading as same as Future trading explained here. Sometimes articles are also understandable than videos.

Just Keep it up. Though i am going through an offline class this article helped me to understand more about futures and margin trading and the step by step method is exemplory.

You can even suggest accounting and book keeping and income tax related expenses applicable incase of future trades. This will then be more clear for newbie to understand should he start with Futures. First Page Previous Page 1 Next Page Last Page.

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