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How to be Successful in Futures Trading?

Posted By On 4/30/2009 09:15:00 PM Under

1. One has to be very careful while trading in futures as trading in futures can be categorised for High risk high return individuals. However you can make it high return low risk trading activity provided one is able to follow the below guidelines:
(a) Remember cash trading is easier than future trading and thus trading in futures requires higher knowledge as one is not taking the delivery of stock and is playing on margin or one can say borrowed money.
(b) One has to note that stock future position has to be settled in cash on or before the expiry of future settlement.
(c) One should be aware of the lot sizes which are at times changed by market regulator to keep it in sync with share price. It has potential to provide unlimited profit or loss.
(d) Margin money varies as per the stock volatility and market wide position of the stock. So be ready to shell extra money as margin in case stock price goes in wrong direction.
(e) No circuit filters for stock future and one should be able to pay the mark to mark difference given a notice.
(f) Stock exchange can put any future under curb if member wide or market wide limit of the future exceeds certain predefined percentage limit. This point is worth noting that one should always check before future trading whether the stock future is under curb or not.Trading a stock which is under curb can invites penalty to be paid as decided by the stock exchange.
(g) Stop loss is generally valid for that particular day. However some exchanges allow good till date stop loss which needs to be confirmed.
(h) Keep difference between trigger price and sale price to have better chance of trade to be executed.
(i) Know future expiration date before one venture in this activity.
(J) Check if cash price of the stock is inclusive of any dividend, right, bonus, spilt rights or not.
(k) Learn about historical volatility of the stock and take the notice of any abnormal deviation .
(l) Be an eagle eyed and spot any abrupt rise in the volume.
(m) Do monitor open interest addition and subtraction of the stock future.
(n) Know what is cost of carry.
(o) also track the options market.
(p) Be vigilant and look for profitable trades by keeping an eye on stock future price and next month future price if it is in the premium or discount to current month’s future price.
(q) Always remember to be able to co-relate change in open interest, cost of carry, volume, volatility to future stock price.
(r) be eagle eyed and watch closely rollover near expiry i.e. if it is below or above the previous month in percentage term.
(s) Undertake technical analysis before venturing in any trade. Study charts and look for patterns and breakout.

2. Remember that Futures is a risky proposition and thus trade after understanding complete pitfalls of trading in this segment. Do check the rules from your stock exchange before venturing in this segment as rules might vary from country to country.

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