Buying a futures contract is basically buying multiple stocks in the spot market. The fundamental difference is that when you buy futures contracts you don’t get instant delivery.
Let’s take a look at the basics of futures trading and what futures trading can do:
It is important to understand the definition of the future. Futures are nothing more than a financial contract that obliges the buyer to buy an asset or the seller to sell an asset on a predetermined date and price.
How to trade futures
Investors in India can trade futures contracts on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Let’s see how to trade futures contracts in India.
Get an in-depth understanding of how futures and options work :
Futures are complex financial instruments and are different from other instruments such as stocks and mutual funds. Trading futures contracts can be difficult for a first-time investor in stocks. If you want to start trading futures contracts, you need to understand how futures contracts work as well as the risks and costs involved.
Determine Your Risk Tolerance :
While we all want to make a profit in the markets, you can also lose money when trading futures contracts. Before investing in futures, it is important to know your tolerance for risk. Know how much money you can afford to lose and if the loss is affecting your lifestyle.
Determine Your Approach to Trading :
It is important to determine your own strategy for future trading. You might want to buy futures based on your knowledge and research. You can also hire an expert to help you with this.
Practice Using a Simulated Trading Account :
Once you understand how to trade futures, you can try the same on a simulated trading account available online. This is a great way to gain first-hand experience of how the futures markets work. This way, you can better trade futures contracts without investing.
Open a Trading Account :
To start trading futures, you need to open a trading account. Do a thorough background check before opening a business account. Also inquire about the rates. When investing in futures, it is important that you choose the trading account that best suits your needs.
Agreement on Margin Money Requirement :
Futures contracts require that a certain amount of margin money be deposited as collateral, which can be up to 5-10% of the contract size. Once you know how to buy futures, it’s important to get the margin you need. When you buy futures on the spot segment, you will be charged the full value of the stocks you bought, unless you are an intraday trader.
Margin Money Deposit :
The next step is to pay the margin money to the broker, who in turn deposits it on the stock exchange. The exchange holds the money for the entire period that you hold your contract. If the cash margin increases during this time, you will need to pay additional margin.
Place buy / sell orders with the broker:
You can then place your order with your broker. Placing an order with a broker is similar to buying a stock. You need to tell the broker the contract size, the number of contracts you want, the strike price and the expiration date. Brokers offer you the option of choosing from several available contracts.
Executing Futures Contracts:
Finally, you need to execute the futures contracts. This can be done no later than the expiration date. A settlement is nothing more than the delivery obligations associated with a futures contract. While in some cases S.B. with physically delivered agricultural products, with a stock index and interest rate futures, the delivery is in the form of cash payments. Futures contracts can be settled on or before the expiration date.
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