What is Future Trading in the Equity Market & how to work in it?
In the Equity Market, our main focus is to create wealth through trade or investment in both the exchanges of NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) both are regulated by SEBI (Securities and Exchange Board of India). Normally we Buy and sell different stocks in the Equity Market and book profits if we get a positive price difference.
When you want to buy in bulk then SEBI gives opportunity to purchase a contract in the near future and decides a certain number of equity in each contract. If you are buying a contract comparatively very small amounts around 10-20% are paid in place of the full amount.
There are three ways to do a Future contract or Future Trading. If you expect prices to Increase then you can Buy a Future or If you think prices are likely to go down then you can sell the Future Contract In another case you buy one contract and sell another month’s contract and the difference will be the profits.
In the Indian equity market, there are many types of Future Trading Contracts like
Equity Future Trading: Where top blue-chip companies or other companies’ shares are purchased or sold on contract as per individual demand.
Index Future Contract: Here Nifty, Bank Nifty, and other Indexes are being sold or purchased.
Commodity Future Contract: Where Gold, Silver, Crude Oil, Zink, Aluminium, Copper, Natural Gas, etc., and agreed commodities are sold and purchased as per contract.
Currencies Future Contract: Where currencies like the US Dollar, Japanese Yaan, and many more are traded
VIX Future: Where Volume Index futures are being sold or purchased.
We can say Future Trading is good for those traders who have Good Experience in the Equity Market and who want to trade in Bulk. They can earn good profits at low risk and low capital, as they pay 10-15% of the Contract Price.
It is contract-based Trading in the equity market where the Investor has to pay the minimum amount for a holding of a large number of shares. Here they purchase in Lots and Get the benefits of full Profits or loss if happens.
Future Trading can be done in indices like Nifty, Bank Nifty, Fin Nifty, Equities, Currency, and different commodities like Silver, Gold, Natural Gas, Crude Oil, Zinc, Copper, Agree Products, etc. It is called Low Risk and High-Profit Trading Strategy.
Futures trading involves buying or selling contracts obligating traders to purchase or sell an asset at a predetermined price on a future date. To trade futures, open an account with a futures broker, deposit margin, select a contract, and execute buy or sell orders based on market expectations.
To get started in futures trading, follow these steps:
- Educate yourself about the market.
- Choose a reliable futures broker.
- Create a trading plan.
- Start with a demo account for practice.
- Begin with a small capital, and gradually scale up as you gain experience and confidence
|Aspect||Futures Trading||Option Trading|
|Contract Type||Obligation to buy/sell an asset on a future date||Right (but not obligation) to buy/sell an asset|
|Flexibility||Less flexible; buyer/seller must fulfill contract||More flexible; buyer can choose to exercise or not|
|Profit Potential||Potentially unlimited gains or losses||Limited loss (premium paid), potentially unlimited gains|
- Allows controlling a larger position with less capital.
- Effective for risk management and protecting investments.
- Access to various asset classes and markets.
- Offers both long and short positions for profit.
- High trading volumes for easy entry and exit.
A beginner’s guide to futures and options trading involves learning the basics, selecting a reputable broker, practicing with a demo account, creating a trading plan, managing risk, and continuously educating oneself about these complex financial instruments. It’s crucial to start small and seek professional advice when needed.
Advantages of futures trading include leverage for amplified gains, diversification across asset classes, effective risk management through hedging, and potential profits from price movements. Futures offer liquidity, price transparency, and tax benefits, making them valuable tools for portfolio management
These 7 best strategies for successful futures trading
- Establish a trade plan.
- Protect your positions.
- Narrow your focus, but not too much.
- Pace your trading.
- Think long—and short.
- Learn from margin calls.
- Be patient.