3.1 – Before the Trade
In the last chapter, we learnt various concepts related to the futures market. Remember, the motivation for any trader entering into a futures agreement is to benefit financially. The trader needs to have a directional view of the price of the underlying asset. Perhaps it is time we take up a practical example of a futures trade to demonstrate how this is done. Let us move away from the Gold example and look into an example related to the stocks.
Today (15th Dec 2014), Tata Consultancy Services (TCS) management, a leading Indian Software Company, had investors meet, wherein the TCS management announced that they are cautious about the revenue growth for the December Quarter. The markets do not like such cautious statements, especially from the company’s management. After the statement, the markets reacted to it, and as we can see from the TCS’s spot market quote, the stock went down by over 3.6%. In the snapshot below, the price per share is highlighted in blue. Ignore the red highlight; we will discuss it shortly.
As a trader, I believe that the TCS stock price reaction to the management’s statement is exaggerated. Here is my rational – If you follow TCS or any Indian IT sector company in general, you will know that December is usually a lacklustre month for the Indian IT companies. December is the financial year-end in the US (the biggest market for the Indian IT companies) and the holiday season; hence the business moves quite slowly for such companies. This furlough has a significant impact on the IT sector revenues. This information is already known and factored in by the market. Hence, I believe the stock sinking by 3.6% is unwarranted. I also feel this could be an opportunity to buy TCS, as I believe the stock price will eventually go up. Hence I would be a buyer in TCS after such an announcement.
Notice, based on my thoughts (which I perceive as rational), I have developed a ‘directional view’ on the asset’s price (TCS). I believe the TCS (underlying asset) stock price will increase in due course of time from my analysis. In other words, I am bullish about TCS at the current market price.
Instead of buying TCS shares in the spot market, I decide to buy the TCS Futures (for reasons I will discuss in the next chapter). Having decided to buy futures, all I need to see is the price at which the TCS Futures is trading. The contract details are readily available on the NSE’s website. In fact, the link to get details for a TCS futures contract is available on the spot market quotes. I have highlighted the same in red in the image above.
Recall, the futures price should always mimic the spot price, meaning if the spot price has gone down, the futures price should also go down. Here is a snapshot from NSE’s website showing the TCS Futures price.
As expected, the futures price has mimicked the spot price, and therefore the TCS Futures is also down by 3.77%. You may have two questions at this point –
- TCS in the spot market is down by 3.61%. However, TCS futures is down by 3.77%? Why the difference?
- TCS spot price is at Rs.2362.35, but Futures price is at Rs.2374.90? Why the difference?
Both these are valid questions at this point, and the answer to these questions depends upon the “Futures Pricing Formula”, a topic we will deal with at a later point in time. But the most important point to note at this stage is that the futures price has moved in line with the spot price, and both of them are down for the day. Before we proceed any further, let us relook at the futures contract and inspect a few key elements. Allow me to repost the futures contract with a few important features highlighted.
Starting from the top, the box highlighted in red has three important bits of information –
- Instrument Type – Remember, the underlying asset is the stock of a company, and we are interested in the asset’s future contract. Hence, the instrument type here is the ‘stock futures.’
- Symbol – This highlights the name of the stock, TCS in this case
- Expiry Date – This is the date on which the contract ceases to exist. As we can see, the TCS futures contract specifies 24th Dec 2014 as the expiry. You may be interested to know that all derivative contracts in India expire on the last Thursday of the month. We will discuss more what happens on the expiry date at a later point.
We had looked at the blue box a little earlier; it just highlights the future price.
Lastly, the black box highlights two important parameters – the underlying value and the market lot.
- Underlying Value – This is the same as the price at which the underlying is trading in the spot market. We know TCS was trading at Rs.2362.35 per share; however, when I took the above snapshot, TCS fell by another few points. Hence the price we see here is Rs.2359.95. per share
- Market lot (lot size) – Remember, a futures contract is a standardized contract. The parameters are prefixed. The lot size is the minimum number of shares that we need to buy/sell if we wish to agree. The lot size for the TCS futures is 125, which means a minimum of 125 shares (or a multiple of 125 shares) have to be transacted while trading the TCS futures.
In the previous chapter, Recall discussed the ‘contract value’, which is ‘Lot size’ multiplied by the futures price. We can now calculate the contract value for TCS futures as follows–
Contract Value = Lot size x Price of futures
= 125 x Rs.2374.90
= Rs. 296,862.5
Before we proceed to discuss the TCS futures trade, let us quickly look at another ‘Futures Contract’ to rivet our understanding so far. Here is the snapshot of the futures contract of ‘State Bank of India (SBI)’.
With the help of the above snapshot, you can perhaps answer the following questions –
- What is the instrument type?
- What is SBI’s futures price?
- How does SBI’s future price compare with its spot price?
- What is the expiry date of the Futures contract?
- What are the lot size and the contract value of SBI futures?
3.2 – The Futures Trade
Going back to the TCS futures trade, the idea is to buy a futures contract as I expect the TCS stock price to go up. The price at which I would buy TCS Futures is Rs.2374.9/- per share. Remember, the minimum number of shares that I need to buy is 125. The minimum number of shares is also colloquially called ‘one lot’.
So how do we buy the ‘Futures Contract’? This is quite simple we can call our broker and ask him to buy 1 lot of TCS futures at Rs.2374.9/- or we can buy it ourselves through the broker’s trading terminal.
I prefer to place trades myself through the trading terminal. If you are new to the trading terminal, I suggest you read through the chapter on the Trading terminal. Once TCS Futures is loaded on my market watch, all I need to do is press F1 and buy the contract.
The moment I press the F1 key (expressing my interest to buy TCS futures) on my trading terminal, a couple of things happen in the background.
- Margin Validation – Remember, whenever we enter into a futures agreement, we need to deposit a margin amount (sort of a token advance), which is simply a percentage of the contract value. We will discuss margins shortly. If there is insufficient margin, we cannot agree. So as the first step, the broker’s risk management system/ software checks if I have sufficient money in my trading account (to suffice the margin requirement) to enter into a futures agreement.
- The counterparty search – After validating the margins, the system scouts for a relevant counterparty match. The match has to be made between me – the buyer of the TCS futures and the TCS futures seller. Remember, the stock exchange is a ‘Financial supermarket’ where one can find many participants with different views on an asset’s price. The seller of TCS futures obviously thinks TCS futures price will go further down. Like my rationale as to why the TCS stock price will go higher, the seller has his own rationale for his directional view. Hence he wants to be a seller.
- The signoff – Once Step 1 and 2 are through, i.e. the margin validation and finding the counterparty, the buyer and the seller digitally sign the futures agreement. This is mainly a symbolic process. By agreeing to buy (or sell) the futures agreement, one gives the other consent to honour the contract specifications.
- The margin block – After the signoff is done, the required margin is blocked in our trading account. We cannot use the blocked margin for any other purpose. The money will be blocked as long as we hold the futures contract.
With the completion of these 4 steps, I now own 1 lot of TCS Futures Contract. You may be surprised to know, in the real markets, all the above-mentioned steps happen sequentially in a matter of a few seconds!
Here is a critical question – What does it mean by “I now own 1 lot of TCS Futures Contract”? Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally agreed with a certain counterparty agreeing to buy 125 TCS shares from me (the counterparty) at Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th Dec 2014.
3.3 –The 3 possible scenarios post the agreement
After agreeing, 3 possible scenarios can pan out by 24th Dec 2014. We know what these scenarios are (we studied them in chapter 1) – the price of TCS can go up, the price of TCS can come down, or the price of TCS could stay the same. Let us arbitrarily take up a few possible price situations and see the price’s impact on both the parties involved.
Scenario 1 – TCS stock price goes up by 24th Dec.
This is a case where my directional view on TCS shares has come true. Therefore I stand to benefit.
Assume on 24th Dec 2014, the stock price of TCS has gone up from Rs.2374.9/- to Rs.2450/- per share; by the increase in the spot price, the futures price would also increase. This means, as per the agreement, I am entitled to buy the TCS shares at Rs.2374.9/- per share, which is a much lower price compared to what is available in the market. My profit will be Rs.75.1/- per share (Rs.2450 – Rs.2374.9). Since the deal is for 125 shares, my overall profit will be Rs.9387.5/- (Rs.75.1/- * 125).
The seller obviously incurs a loss, as he is forced to sell TCS shares at Rs.2374.9 per share instead of selling it in the open market at a much higher price of Rs.2450/- per share. Clearly, the buyer’s gain is the seller loss.
Scenario 2 – TCS stock price goes down by 24th Dec.
This is a case where my directional view on TCS shares has gone wrong. Therefore I would stand to lose.
Assume on 24th Dec 2014, the stock price of TCS goes down from Rs.2374.9/- to Rs.2300/- per share; by this decrease, the futures price will also be around the same level. This means, as per the agreement, I am obligated to buy the TCS shares at Rs.2374.9/- per share, which is a much higher price compared to what is available in the market. My loss will be Rs.75./- per share (Rs.2374.9 – Rs.2300). Since the deal is for 125 shares, my overall loss will be Rs.9375/- (Rs.75/- * 125).
I would obviously incur a loss as I’m forced to buy the TCS shares at Rs.2374.9/- per share instead of buying it in the open market at a much lower price of Rs.2300/- per share. Clearly, the sellers gain is the buyer’s loss.
Scenario 3 – TCS stock price remains unchanged.
Under such a situation, neither the buyer nor the seller benefit, hence there is no financial impact on either party.
3.3 – Exploiting a trading opportunity
So here is a situation – after buying the TCS futures on 15th Dec 2014 at Rs.2374.9/- the next day, i.e. 16th Dec 2014, TCS price shot up. It is now trading at Rs.2460/-. What do I do? Clearly, with the price increase, I stand to benefit significantly. To be precise, at the time of taking the snapshot, I am sitting at a profit of Rs.85.1/- per share or Rs.10,637.5/- (Rs.85.1/- * 125) as an overall profit.
Suppose I am happy with the money that I have made overnight. Can I close out the agreement? Or rather, at Rs.2460 per share, what if my view changes? What if I no longer feel bullish about TCS at Rs.2460? Do I really need to hold on to the agreement until the contract expiry date, i.e. 24th Dec 2014, by which time if the price goes down, it could lead to a loss?
Well, as I had mentioned in the previous chapter, the futures agreement is tradable. Meaning, at any point after entering into a futures agreement, I can easily get out of the agreement by transferring the agreement to someone else. This means I can close the existing TCS futures position and book a profit of Rs.10,637.5/-. Not bad for a 1-day job, right? J
Closing an existing futures position is called “square off”. By squaring off, I offset an existing open position. In the case of the TCS example, I initially bought 1 lot of TCS futures, and when I square off, I have to sell 1 lot of TCS futures (so that my initial buy position is offset). The following table summarizes the concept of square off in general –
| Serial No | Initial Leg | View at the time of initial leg | Square off leg | View at the time of squaring off |
|---|---|---|---|---|
| 01 | Buy / Long | Expect the price to go higher – Bullish | Sell | No longer expect the price to go higher, or one wants to get out of the existing position (for whatever reason) |
| 02 | Sell/Short | Expect the price to go lower – Bearish | Buy | No longer expect the price to go lower, or one wants to get out of the existing position (for whatever reason) |
When I intend to square off a position, I can either call my broker asking him to square off the open position or do it myself on the trading terminal. In the example, we have a buy open position in TCS futures (1 lot). To offset this open position, the square off position would be to “sell 1 lot of TCS futures”. The following things happen when I opt to square off the TCS position –
- The broker (via trading terminal) scouts for a counterparty that would be willing to buy the futures position from me. In simpler words, “my existing buy position will simply be transferred to someone else”. That ‘someone else’ by buying the contract from me now bears the TCS price’s risk going up or down. Hence this is referred to as the “Risk Transfer.”
- Note, the transfer will happen at the current futures price in the market, i.e. 2460/- per share.
- My position is considered to offset (or squared off) after the trade is executed.
- Once the trade is executed, the margins that were initially blocked would now be unblocked. I can utilize this cash for other transactions.
- The profit or loss made on the transaction will be credited or debited to my trading account the same evening itself.
And with this, the futures trade is now set to be complete.
Note, if at Rs.2460 I develop a view that the price will be much higher; I could continue to hold the stock futures. In fact, I can continue to hold the futures till the contract’s expiry, i.e. 24th Dec 2014. As long as I continue to hold the futures, I continue to hold the risk of TCS price fluctuation. In fact, here is the snapshot of TCS futures taken on 23rd Dec 2014, just 1 day before the expiry of the contract. Had I opted to hold the futures till 23rd Dec, my profits would have been much higher – TCS futures is trading at Rs.2519.25/- per share.
In fact, on 16th Dec 2014, when I decided to book profits at Rs.2460/-, ‘someone else’ bought the TCS futures from me. In other words, I transferred my buy position to someone else, and even that ‘someone else’ (the counterparty) would also have made money on this contract by buying the contract at Rs.2460/- from me and holding it until 23rd Dec 2014. Now here are two simple questions for you –
- What would be my Profit & Loss (P&L) on a per share and an overall basis had I held the TCS futures from 15th Dec 2014 (Rs.2374.9) to 23rd Dec 2015 (Rs.2519.25)
- On 16th Dec 2014, I squared off my position at Rs.2460/-, obviously by the contract’s square was transferred to a counterparty. Assuming the counterparty held on to the TCS futures position until 23rd Dec 2014, what would be his Profit & Loss (P&L) on a per-share basis and overall?
If you cannot answer the above two questions, you can drop in a query in the comment box below, and I will be happy to explain the answer. But I sincerely hope you get the answers to the questions above yourself 🙂
In the next chapter, we will discuss margins, an essential aspect of futures trading.
Key takeaways from this chapter
- If you have a directional view on an assets price, you can financially benefit from it by entering into a futures agreement.
- To transact in a futures contract, one needs to deposit a token advance called the margin.
- When we transact in a futures contract, we digitally sign the agreement with the counterparty; this obligates us to honour the contract.
- The futures price and the spot price of an asset are different; this is attributable to the futures pricing formula (we will discuss this topic later)
- One lot refers to the minimum number of shares that needs to be transacted.
- Once we enter into a futures agreement, there is no obligation to stick to the agreement until the contract expires.
- Every futures trade requires a margin amount; the margins are blocked when you enter a futures trade.
- We can exit the agreement anytime, which means you can exit the agreement within seconds of entering the agreement.
- When we square off an agreement, we are essentially transferring the risk to someone else.
- Once we square off the futures position, margins are unblocked.
- The money that you make or lose in a futures transaction is credited or debited to your trading account the same day.
- In a futures contract, the buyer’s gain is the seller’s loss and vice versa.
Why we should buy future stock instead of equity, pls clarify…..
It is explained in the next chapter 4, the same will be uploaded next week.
I have 1 lot (short/sell) of nifty march futures. Now I want to (buy/long) another 1 lot of nifty march future. If I do this then my (sold/short) one lot will be square off or not? Can I buy/long another 1 lot of nifty march future?
Yes, your short position will be squared off. Instead, buy 2 lots, one lot will be offset with the existing short and the other will be a fresh long position.
Thanks for advising me. If I want to roll over nifty march future to next month what is the procedure?
Nothing special. You just have to close the Feb futures and initiate the same position in the March futures. This is called ‘rollover’.
You can use futures as hedging instrument and in futures you will able to buy the stocks by paying margin amount and you need to buy the lot size in futures (lot size varies regarding to the stock price). Probably risk is high in futures compared to equities.
What would be my Profit & Loss (P&L) on a per share and on an overall basis had I held the TCS futures from 15th Dec 2014 (Rs.2374.9) to 23rd Dec 2015 (Rs.2519.25)
Ans: Rs.18043.75/- (profit) = 2519.25-2374.9*125
On 16th Dec 2014 I squared off my position at Rs.2460/-, obviously by virtue of the square off the contract was transferred to a counterparty. Assuming the counterparty held on to the TCS futures position until 23rd Dec 2014, what would be his Profit & Loss (P&L) on a per share basis and on an overall basis ?
Ans: Rs.7406.25/- (profit) = 2519.25-2460*125
sir please correct if i’m wrong …. 😛
Perfect Sir!
“In a futures contract, the buyer’s gain is the sellers loss and vice versa”
Then who is at loss here in 1st case and from whom he gets the profit in below scenario?
sushil 12 says:
January 10, 2015 at 1:22 pm
1)What would be my Profit & Loss (P&L) on a per share and on an overall basis had I held the TCS futures from 15th Dec 2014 (Rs.2374.9) to 23rd Dec 2015 (Rs.2519.25)
Ans: Rs.18043.75/- (profit) = 2519.25-2374.9*125
2)On 16th Dec 2014 I squared off my position at Rs.2460/-, obviously by virtue of the square off the contract was transferred to a counterparty. Assuming the counterparty held on to the TCS futures position until 23rd Dec 2014, what would be his Profit & Loss (P&L) on a per share basis and on an overall basis ?
Ans: Rs.7406.25/- (profit) = 2519.25-2460*125
Karthik,
I think the answer above it wrong. P&L is basis the stock price / underlying value. The P&L calculated by the gentleman is basis the spot prices. Pls correct as it may mislead the readers.
I got my mistake. On dates before 24th, the P&L would be basis the price of ‘Future’.
Yes.
Let me recheck. But the P&L for futures M2M requires you to track the futures price.
Hi Karthik, I apologize for asking you a question on Options which is presently out of context. But I would appreciate if you could clear this doubt as this doubt has occupied my mind.
I have a doubt on Options trading. (Selling/writing CE)
Say the spot price of an XYZ stock is 670.I would like to trade a bull call spread strategy. I am sure the price would go to 720+ and so I buy a 680CE. I also sell a 740CE. Suppose on any day before expiry the spot price has moved from 670 to 730. Now I know that the 680CE is in the money and I am in profit. My questions are-
a)Could you tell me if the 740CE which I sold is in the money? (If the spot price is 750 I know the 740CE which I sold is out of the money)
b) If before the expiry the spot price is 730 and I decide to square off, then will I keep the premium for the 740CE which I sold?
The reason I am asking you this is because I thought if the price moved from 670 to 770 and then back to 720 then the 740CE that I sold would be in the money, but I have doubt in this case, when the price would move from 670 to 730 without moving beyond 740 and back below 740. Thank you!
Hi Karthik,
I got the answer. I had confused myself when I typed in the above message. Now its clear. As long as the Spot price is below the strike price for the Short CE the other party would not exercise the option and I will have the premium the other party paid. Thanks anyway!
Hi Karthik, I still have one small doubt. Can I square off my position (both long and short CE) before expiry? If the answer is Yes, then I assume I will profit the premium paid by the other party for the short CE?
Saw the previous two msg’s as well..yes, you can square off the position anytime you wish and profit from the trade (if it is panning out that way).
Hi Karthik, I have one more question for you.
Say I go to the NSE webpage and look for the derivative quotes of an XYZ stock. There I find the details for the XYZ futures contract and see that in the order book for the Jan29 future contract there are 2,07,000 buy quantity and 7,93,000 sell quantity. Does this mean that more number of contract holders expect the price to go down?
Not really, it just means for that ‘moment’ there are more sellers. Markets are so dynamic that the situation can turn ard sooner than we can imagine.
Don’t know if I am late, but I have a question.
Regarding the question asked by Keerthan above, what does it mean there are 207000 buy quantity and 793000 sell quantity. Shouldn’t there be equal number of buy and sell quantity. I mean, from what I understood in this chapter is that every buy order is matched with a sell order.
On a similar note, when I want to square-off my position, is there some situation like there is no respective buyer/seller, and my transaction is on hold till some such person is found?
sir. cant wait anymore … please upload all chapters asap… 🙂
I have to sit and write the content sir! I’ve realized writing about futures is way more complex than actually trading it 🙂
You are doing excellent work. This all modules and chapters very very useful for newbies.
Happy to know you liked it, Ankit. Good luck and happy learning.
Let’s say I buy a futures contract that expires on a certain day, and I am making money because I went long and the spot price has increased. Now for me to make the profit do I need to square off or just wait it out till the markets close on expiry? To book profit?
You can book profit anytime you wish, Milind. There is no need to wait for the expiry.
i hope u r not alone writing content .. whole Zerodha team is with you.. .or . recruit me i i’l help you 😛 😀
We are a bunch of people working on it Sushil, not just me :). Thanks for offering your help, will keep that in mind !
i understand complexity of writing content .. i have been appreciating your job since first day. sir .. !!!! now lets conquer the whole subject .. 🙂
🙂
Hi Karthik,
Wonderful! Content.
If you continue to hold the futures till the contract’s expiry i.e. 24th Dec 2014, do you have to explicitly sell them on 24th or are they auto-sold on 24th as it is the expiry date of futures?
Thanks,
Ravi
Not necessary, the contract will cease to exist upon expiry. Hence it as as good of auto-square off by the exchange. More so, because you are not selling in order to square off, you also save on brokerage cost 🙂 But you will have to pay STT and other applicable charges.
If I want to hold the future stock to next month what should I do. Is it possible to hold my future stock from current month to next month.
Please reply me.
Thanks
Yes you can. You can buy the contract expiring next month (mid month) in this month (current month) itself.
Where can i find the price of the squared off futures in Zerodha/Q that i left it for expiry without trading.
Check your tradebook in Q.
Hi,
Suppose I short Banknifty @ 24260 on29th Aug. Do I need to square off today by closing of Business?
Can I hold this short position overnight and square off when price is on my favour / huge favour?
BR//
Vipul
You can hold the short position in futures till expiry.
Sir,
“M&M 1340CE Long Call buy 1 lot Reco 12.05 CMP 12.05.”
What does this mean? Please let me know what will be the buy value and margin % ?
Warm Regards.
It just means you need to buy the 1340 call option @ 12.05. The premium will be 12.05 * the lot size. We will discuss more on this when we take up the module on Options.
Sir,
Please explain.
Regards.
oops, here is the correct image.
Hi Karthik, Thanks a lot for answering one of my question about how to stay short for a long time in market. The answer was “Furtures contract”. After I went through this chapter I felt how trivial my question was. I now have one more basic question now. This is regarding the TCS example you have quoted to explain. You mentioned that December is not a friendly month for IT stocks and the downtrend in TCS is likely to turn around. So you have opted to go long in this future contract. But for a newbie like me, who is not aware of this December fever of IT stocks”” would look into the stock and do a technical analysis. If I see a bullish candle stick pattern I’ll go long in the contract. But my question is why would some counterpart accept the contract. Since we all have same views on the market, according to my assumption finding a counterpart must be difficult or if it happens it must be someone who accepts this contract without knowing the consequence that I will make the profit and not him. Kindly clarify. Sorry for such a long message.
Not really 🙂 Markets are soo big and vast, there are many people involved and each person has a different opinion. Different opinion is what makes a market. For example think about it, when the new Govt came, it was a no brainier that the market will go up so why dint everyone buy? Likewise at any given point people have different opinions…which is what markets are all about.
Hi karthik sir
I bow down to you for such a simple and easy explanation on how futures trade is done. I’m very much new to trading and haven’t got a clue how it’s done and now I can.say I have some clarity on how futures trade is done
Many have tried to teach me and failed
Thanks a million sir 🙂
Honored to know this Santosh! We are glad you liked the content here. Please feel free to post your queries and we will reply back as soon as we can. Thanks.
bank nifty mifty stocls future when buy or sell & what can do when lose 2000 or more ex.
You need a strategy for the trade, without which losses are bound to happen.
what would had happened if i not closed my tcs future contract on 24.12.14. irrespective of buy or sell position & price fluctation. particularly any penalty is there for non closure of the contract on the expiry day.
On the day of the expiry all derivative contract ceases to exist. This means even if forget to sq off the exchange considers it squared off. Also there is no penalty for doing so.
My question is if Auto square off happenes on the expiry day, Who will be the owner of that lot?
No one, everyone gets settled on the expiry day and all contracts would cease to exist.
Hi Karthik,
Can you please let me know on how the Cost of Carry (both buy and sell) and implied volatility and annual valatility will be caliculated for a futures contract.
Cost of carry is simply the interest rate component in the futures pricing formula….expressed as Rf * (X/365). Request you to read this chapter on Futures Pricing – http://zerodha.com/varsity/chapter/futures-pricing/. Also all topics related to Volatility will be explained in the Options Module.
Sir
On expiry if there is no buyer available for my future contract then what happen about my future contract
And also on expiry chances of buyer is low is this true
And
Why any other people buy future contract on expiry if is so short time
If there is no buyer on expiry day then not to worry as the exchange will make sure you are settled. People buy for various reasons – maybe they could just be doing a shortcover or rollover.
Hi Karthik,
Can we Rollover a Futures Contract?. If yes, then how can that be done?. What are the charges applied?.
Can you please provide a more detailed explanation to this?.
Suppose today is the day before expiry and I hold 1 lot of current month’s Futures contract. I decide to close this position and buy the next months position then I have simply ‘rolled over’ my futures position. Rollover is the act of closing this months contract to buy the next months contract…nothing more at all.
Standard trading charges such as brokerage, STT, Transaction charges etc are applicable here. I would suggest you look at this to understand different trading charges – https://zerodha.com/brokerage-calculator
Hi Karthik Sir,
What is the difference between stock future trading and commodity future trading?.. Waiting for Commodities Future Trading Module… but it will take more than 2-3 month i guess.. 🙁
Yes commodities will take some time 🙂
We are working on Option Theory presently, after this Option Strategies, and then work will start on IRF & Commodities. Thanks for your patience, but I hope you understand.
Sir, lets assume we entered a future contract from 15 December to 24 December. But we squared off the contract on 16 December. So the person, who buys from us, will he enter the contract from 16th Dec to 24 Dec? And is the whole profit/loss credited into my account the same evening? Or some part of it?
You are right, when you buy on derivative contract you are entitled to hold the contract till expiry. However you can choose to close it earlier. The Profit or Loss is credited to your account the same day.
Sir, lets assume I enter into a future contract (of 50 shares, Rs 100 each) with ABC on 15 Dec. The expiry date is 25 Dec. Lets say the margin is 10%. So, Rs 500 will be blocked from my account. Then if i square off the contract to XYZ on 16 Dec, at Rs 200 each, will i be credited the whole profit, i.e. 5000 on 16 Dec only? Or will I be credited Rs 500 only (as per the margin for XYZ)? If yes, when will the rest of the amount be credited in my account?
Both the margins and your P&L will be credited back to your account the same day as you close your trade.
Sir can you please tell how to hedge a long future position with options. For example I am bullish on ABC stock and so I go long on it by buying 1 lot of future contract, now if because of some sudden bad news the next morning the stock goes in down trend say – 2 or 3 percent or even more.. in this case off course I ll have a stop loss to minimize the loss.. but how can I hedge my position where I can cover up my losses incurred on squaring off at the stop loss rate. Can I buy/ sell a put or call of the same stock if yes then how many lots in options should I play. Sir if possible please explain with example of some stock. Regards
You can hedge the futures position by a deep ITM option. For example if you buy Infosys Futures at 1150, then you can go ahead and buy 950 (ITM) PUT option to hedge your futures position. I would suggest you read about Delta as explained in the Options module to understand the rationale.
Sir thanks a lot for the reply & your suggestion regarding ”delta for options…” your website has many good things to learn about trading rather than just following blind tips on TV.. In the above example of infosys.. i.e with going long on infosys at 1150.. will it be a good hedging strategy to sell a call at higher levels like selling 1250 call, because in options [ if we are bullish] I have heard & read about buying a lower level call and selling a higher level call, I guess its called bull call spread.. waiting for your reply.. Thanks & Regards..
“your website has many good things to learn about trading rather than just following blind tips on TV” – Seriously this made my day! Thank you so much!
Module 6 will contain many options strategies including the bull call spread. Request you to please stay tuned till then 🙂
Sure Sir.. thanks a lot..
Welcome!
a)In the TCS example,the conterparty had to buy shares from you.But from whom would you buy the shares?
b)Suppose,the price of a stock decreases,a trader will square off his position.With the expiry date nearing,and the price still decreasing,wont it become more difficult to transfer the agreement?Also,will not the buyers of the future prior to the expiry date be of a speculative nature?
A) I would buy from another counterparty who would think selling TCS (at point) makes sense. Remember in a market place, different people have different opinions on the same asset. This is what really makes a market.
B) As long as there is ample liquidity (lots of buyers and sellers) it should not be a problem. Yes, I would agree trading near to expiry is speculative.
What happens if we don’t square off futures contract , I’m assuming it will be automatically squared off on expiry date , so incase if it’s a profit the money will be credited to my trading account ? And what happens if we don’t have anybody to buy the contract on the expiry date?
Yes, if you choose not to square off by expiry then the exchange/broker will do the needful for you and debit/credit your account. There is no question of not finding a buyer/seller for your contract. I would suggest you read the chapter on open interest to get a better clarity.
Are there any penalty or any differnt charges if we do not squire of the F&O position on expiry by our self and exchange does it automatically? I am using Zerodha.
No penalty as such.
I think under Scenario 3 (I.e. TCS stock price remains unchanged) the buyer of future contract would loose a bit. As price of futures would fall a little as expiry nears. On 16 Dec TCS future was trading 12.5 points above TCS spot whereas on expiry day (23 Dec) the difference has reduced to 2.25 points. So loss of about 10 points.
Well, the idea here is to give the readers a high level overview 🙂
Sir i have a question if I buy 2 lots of xyz company 1 lot with near month expiry and other lot with mid month expiry. After some days can I square off mid month expiry lot first than the other lot
Yes, you can do that..no problem.
Why we should buy future stock instead of equity
Because Future offers leverage.
there are several futures listed on both NSE & BSE , and always a price difference exists ……. if i wish to do a inter-exchange arbitrage ….. lets say selling XYZFUT on NSE for 100.50 and buying the same XYZFUT on BSE for 100 .
1) will PI show 2 seperate positions (NSE-SHORT & BSE-LONG) or my trade will be executed just as i planned ?
2) can i expect any margin benefit?
3) what if i do the same thing for MIS spot equity ?
There is no active F&O market in BSE 🙂
Hello sir,
Can Stock price carry away the price of future ?
OR
Future price is responsible ?
my question is, after investor’s meeting some bad news coming out for TCS.
and many people wants to sell in huge qty of shares of TCS . then spot price may down and future also may down.
but lets assume that nobody wants to sell TCS stock, but someone wants to short TCS future in Huge volume,
then spot price get affected ? future price also can drive spot price ?
Underlying price dictates the derivatives price but for short periods it could be the other way round as well.
please , can you explain with more details ?
Thanks
Milan, very difficult to explain this in a comment box – I’ve done the same across the first 4 chapters, suggest you go through the same. Thanks.
hi….can i consider future contract is just the shadow of spot price…i think for many traders this is unanswered question…why spot and future price should go in same direction even though traders ,traded volumes are different in 2 segments.
Yes, you can. Futures and Spot always move in same direction (although the prices differ).
Query on Future
I have a nifty future bought for 45 k as an exmaple(nifty 7628 Jan 2016 series) .I dont have any more cash in Trading my account .
a)Will my position get squared off if the nifty go beyond a range
b)If I need to have some amount left in my account to carry the position till expiry ,how much amount i need to have and how its getting calculated
regards
Arun
When you buy/sell futures you will have to deposit Span and Exposure margin. Make sure you maintain SPAN margin at any given point, this will ensure your position in the market.
ThanQ Karthik
Welcome!
Sir at 1st Thank you so much for your wonderful explanation
i have two question
1.Can i participate future contract (without buying) as a seller? than my position would be short?
2.after the squaring off if i have profit or loss than, how i received my profit or deduct the loss (that mean what is the affect of my trading account balance)?
Yes, of course you can sell and buy back later. The P&L will be adjusted from your trading account. Profits will be added and loss will be deducted.
As in stock, we have “cash price” and “future price” in Nifty and Banknifty.
Can we trade “Cash” Nifty or Banknifty?
Nope, generally there is no cash equivalent for indices. However you can buy a Nifty ETF (Niftybees)…this is like the cash equivalent.
Thanks Karthik
Actually I am good at guessing Cash levels in Stocks and Indexes but have never tried Futures due to “Premium – Discount” difference in their prices
Well, the premium / discount levels should not bother you much, go ahead and give it a try 🙂
sir,
i sold NMDC fut on 23 feb 2016 at 94.1 and brought on 24 feb 2016 at 86, but 24 feb 2016 is effective date for dividend , dividend of 9.30rs, it showing loss in ledger instead of profit. i don’t know dividend is discount in future, if i buy NMDC fut in 23 feb at 94 and sold on 24 feb at 86 then i got profit 2 rs right sir? please explain these scenarios.
sorry for my english, tq in advance
Well firstly the profit calculation should show you a profit of Rs.8.9/- (94.1-86) and not Rs.2/-. Anyway, as you pointed out when dividends are paid out, it gets adjusted with the spot price (and therefore the futures price). So your entire notional profit (8.9) was offset with the dividends (9.3) and hence resulted in a minor loss.
I do not agree , with this , in practicality , whether one has taken position in equity features , ( as per example NMDC), whether a dividend is declared or not, as that div. on spot (actual equity ) has is not going to be credited to your lot .i.e. equity features, so it has nothing to have impact of its trading , of features ,
though its spot price may get corrected creating an impact either positive or vice versa( mostly negative) on features price of that contract, so creating a profit as absolute profit in new terms or loss as absolute loss , if it corrects to much deeper value. [email protected]
Not sure how you are attributing this, from what I know, dividends are adjusted with Spot price, and therefore with ‘Futures’.
sir,
in NMDC profits are showing in contract note and P&L in QUANT but not in ledger then i called zerodha support they said that that is technical error we forward this issue to tech department, sir please tell me how long dividend will discount from future, from announced date to effective date they discount dividend in future ? if i buy, dividend will not discount from future right? please explain sir
Usually the dividends are adjusted on ex date. I’d suggest you wait for the tech team to revert. Thanks.
Mostly it happens with Infosys and wipro, features of those 2 equitie are hammered , once they become ex.dividend
so its prudent idea to short infy or wipro features for next month (preferably to current months features) to GAIN good price corrections and PROFITS
Unless you back test this for positive P&L, it would be hard to justify this claim.
Hello Karthik,
Great series, this! You’ve managed to drive these concepts into the head of an MBA in marketing – which is by no means a mean feat. 😉
Once I’ve closed a Futures position (i.e. I bought one lot of Crude Oil Mini on Monday and sold one lot on Wednesday, or vice versa), it ends any obligations I might have had towards that position, doesn’t it? Is it a ‘done deal’, in that there remains nothing further to be done or paid?
Thanks!
Thanks for the kind words Ajay!
Absolutely – you buy and sell (long trade) or sell and buy (short trade) then you have completed the trade and its a done deal :). You will have no more obligations, what so ever.
Thank you!
I have a couple more questions to ask. One too many, perhaps, but I want to have all my doubts cleared so I can trade confidently. 🙂
– The question of settlement arises only when I hold the contract till expiry, doesn’t it? What would happen if I were to buy a lot of crude oil Mini through Zerodha and hold on to it till the expiry date?
– Do I need to take care in order to avoid physical delivery while trading commodities? I believe Zerodha does not allow physical delivery, but a confirmation from your end would be nice. (so I know I won’t wake up one morning to twenty barrels of oil at my doorstep. 😛 )
I’ll probably be asking more questions at a later date, so thanks in advance! Do publish the commodities module soon – I can’t wait to read it.
All expiry settlements are cash settled by default, hence no need to worry about physical settlement 🙂
Will be starting commodities module very soon !
Is it prudent STRATEGY to go either short or long in index features or equity features in next month contract , i.e June 2016, as today 29-04-2016, Friday is the first day on may contact or in July 2016 as far month contract. As one gets ample days either 60 days or 90 days -to get MUCH SOUGHT profit , or one should STICK to current month contact only …. [email protected]
Well when it comes to futures trading, the profitability depends on the directional movement of the stock/index and not really the time remaining to expiry.
How about presenting a fair valid opinion about averaging of futures contract,
like assume spot price of BAJAJ FINANCE was 6850 on 23 th march 2016, and some one has taken a position ,a SHORT ( – / SELL) at May 2016 contract ( lot size 125)of BAJAJ FINANCE at – 6900 ,( Rs. 50 as premium, assuming it to go downward or – ve price growth )as we all know that, BAJAJ FINANCE may counter – contract , has reached upto 7550 for may 2016. and declined to 6900 also
so, to make averages, he / she made further positions , further SOLD same may contracts, 4 lots ( 125 each) like at now is having 5 lots for BAJAJ FINANCE May contract( – SELL) 1st one -6850,( 2 nd one -6975, and subsequently BOUGHT / SQUARED i at +6940, making a profit of 125*35 =4375, again sold it subsequent second position / Third position -6990, then -7200, -7350,-7450 , Now he has said ( as margin money exhausted – he felt dumb faced)so his average position ( best of 5)is -6880-6990-7200-7350-7450= 7175, X 5 lots
Sorry, I still don’t seem to understand what you are trying to convey.
Now , as we all know BAJAJ FINANCE CORRECTED Now to 6850 in spot ( 28th April2016) he is PROFIT, had it been ( worst scenario 7500 ) then whether strategy of averaging was OK, ….. let me know your PRUDENT views [email protected] 9561397999
whether averaging of index features like nifty / bank nifty is a GOOD STRATEGY or NOT ? still goes unanswere d, anyone pppppllllleeeeeaaaaaaasssssseeee
Well no one can give a specific answer to this one, in general you should know that averaging on a losing trade is a bad idea as you are throwing good money after a bad trade, and the trade can go worse. However for the exact opposite reason, averaging on a winning trade is a good idea.
Hi Karthik Sir,
I never traded futures before but now I want to..plz tell me is it right what I am going to explain below:
in the morning @ 9.20 adani port futures trading at 205. I short 1 lot of futures @205 later @ 10.15 futures was trading @ 200. its lot size is 1600.
does that means I gained 1600*5= 8000 within an hour??
can I buy futures of any stock at market price or I have to buy them using limit order??
does technical analysis work well on stock futures chart or I have to use them on original stock chart??
kindly explain…
Yes, what you explained is right, you would make 8K on this trade. Also, it is good to use limit orders while trading stock futures. And TA works best on spot charts.
Sir,
First thanks for the great work from u(specially)& the zerodha team.
Sir as u said technical analysis works best on spot charts does the same reflect to nifty,bank nifty,
Or when it comes to the index future’s we should use future charts for nifty future and bank nifty future.hope I will get the reply.
Plz explain sir.
Thanks in advance.
Yes, I personally prefer to work on the spot chart and act on derivatives. However, there are many traders who prefer to work on the futures chart. It really boils down to your conviction.
Sir thanks for the reply.
Happy new year 2018.
Looking forward to be with zerodha family as soon as possible?
Happy New Year to you as well!
I’m sure you will have a great experience with Zerodha 🙂
1.) How the no. of contracts (10 crore or 50 crore) of a particular underlying such as SBI, Tata Motors is decided in the Futures Segment.
2.) We know that if 95% of open positions are reached then that contract comes under the ban list. Now my question is whether Nifty Futures Contract can also come under this ban list if this limit is reached?
The no of contracts are decided by the exchanges. Yes, ban is applicable to all instruments. However Nifty futures has so much liquidity that it is quite difficult to reach that status.
I am new to futures trading . Understood a lot from the content posted. Please tell me can we square off a position same day in futures. Talking about above example , can we sell shares of TCS on 15th dec ,if the price rise the same day.
Yes, you can. In fact both futures and options can be squared off any second after taking the position.
Lets say, person ‘A’ is agreed to buy TCS future contract @ 2374.9 rs from person ‘B’ who is agreed to sell. On the next day ‘A’ transfers the contract to ‘C’ @ 2460 rs. Now ‘C’ is obliqued to buy @2460 rs but not @ 2374.9 rs. Now if ‘C’ and ‘B’ are in agreement, how the difference in prices are adjusted?
The prices are market driven and the transactions are routed through exchanges. So all the adjustments are taken care by the exchange.
Sir can I use the same technical analysis I use for equities to predict the direction of movement ?
Yes, you can. TA is applicable to all assets which has time series data.
Sir i have a doubt in SQUARE OFF. While squaring off whether i have to sell or transfer my open position (may be short position or long position OR i have to take the opposite position to square off?
Are they both same or different things? Please explain me sir.
When you squareoff, you actually transfer your position to someone willing to take that position.
Thank you for your response sir, but please give me some clarity on this doubt sir.
If i say the broker to square off my open short position then what is he actually doing. whether he will sell/transfer the short position to some one else OR he will take the opposite position ie, (BUY POSITION) to square off . please clarify it sir this doubt is lingering in my mind.
He will just initiate an opposite position which technically means he has transferred risk from you to someone else.
Thank you very much for clearing the doubt sir.
Welcome!
Sir,your explanation regarding futures was wonderful??..But,sir i still have one doubt that when we square off the position by selling the futures contract do we have to pay initial margin again and if yes when will i receive the margin back???
No, when you square off an existing option you just unblock margins.
Sir i have one more question that is it possible for me to take delivery of stock on expiry date..i.e as given in the example that i buy tcs future contract at 271.9 and take the delivery of the stock on expiry date buy paying the seller the remaining balance amount and hold the stock??
No, upon expiry all options will be settled in cash. No physical delivery of stock is allowed.
Sir as you said that on expiry futures contract are cash settled than how will anyone make money incase of reverse arbitrage as incase of reverse arbitrage you buy stocks from futures market and sell it in spot market and the price difference in future and spot market is your profit,So for selling it in spot you need to lend stock from exchange under Under stock lending scheme of exchange.so sir my question is if i dont get the delivery of stock than how will i return back the stock which i have lend from exchange??
In SLBM, you borrow, short, and cover at a later stage. This is again settled in cash. So is futures. I dont see a problem at all. Or maybe I have not understood your question well. Can you kindly elaborate please, thanks.
Sir what i mean to say if futures are only cash settled than how is arbitrage gain possible because in arbitrage you buy from spot market of which you get the delivey to your account and sell the same in future market because of the price difference.So my my question is if you dont deliver stocks that you have purchased in spot market and settle it through cash settlement then how arbitrage gain possible????Arbitrage is only possible when buy from one market(spot market) and sell it in other market(future market)…so for this to happen settlement through delivering the asset is necessary know rather than doing a cash settlement because you will only able to earn profit by delivering asset what you have purchased in the spot market rather than a cash settlement as price in spot market is low as compared to futures market???and if in futures if contracts are cash settled than what will happen to those stock of which you have taken the delivery to your account so that you can sell it futures because of the price difference between spotmarket and future market??
Ah! now I get your point. You need to be aware that futures are cash settled and in spot (delivery based) is by default settled in actual movement of shares. Keeping this in view you need to scout for opportunities and execute only those trades which makes sense with this arrangements. An example of this would be – Long in spot + short in futures.
Sorry sir i am many question but i just want to clear my doubts.
My question is What if the price of the future goes up than my purchase price but i dont find any buyer to whom i can sell my stock??
I’m hoping my previous answer will give you some clarity.
Sorry sir i am asking you many question but i just want to clear my doubts.
My question is What if the price of the future goes up than my purchase price but i dont find any buyer to whom i can sell my stock at profit before expiry date?so basically my question is buyers of the future contract easily available and is thier enough liquidity in the Future market??
Please feel free to ask as many questions as you want, it helps not just you but many others.
If you intend to hold the futures till expiry then you need not worry about finding a buyer as the exchange will take care. However if you want to sell before the expiry, then it really depends on the liquidity. If you are trading couple of of lots, liquidity is not a problem.
Sir is it possible to First buy a july expiry future contract and then squaring off or exiting the future by selling it in august expiring future contract or vice versa??For example if price of july expiring Infosys future contract is Rs 1200 and august expiring infosys future contract is Rs 1228 so it possible first to sell august expiring contract for Rs 1228 and then immediately squaring off or exiting future contarct by buying a july month future contract for Rs1200 ??
The same answer I suggested for your GMR query holds true here as well.
Sir i wanted to trade in future and option segment,but i am really very worried about whether i will find the counterparty or not to whom i can sell my future contract.Till now i was trading in normal market where i was finding immediate buyers and sellers of the stock.So just wanted to confirm with you that is that same even with futures and option segment???is there liquidity in futures and option segment??
Harshit, you need not worry about counter party risk. Stick to Nifty 50, and top 5 stock futures. 1000’s of crores gets traded everyday, so there is ample liquidity here.
Sir thankyou for answering all my queries and i am really very sorry that i am asking you many questions but i just need to clarify my doubts..
Sir suppose there are three contracts for a stock that is near month ,next month and far month.Suppose i go long buy buying a far month future contract.So my question is when i am squaring off my futures contract can i sell that contract to anyone or i must look for a person who is willing to buy the far month contract only not near or next month…So basically my question is can i sell that far month contract which i have bought even to a person who is willing to buy near or next month contract or i can only sell that future contract to a person who is looking for the far month contract only…
Harshit – when you want to sell it is the job of the exchange to identify a buyer for you. All you have to do is press ‘F2’ for sell on your trading terminal and press submit. Over the next few seconds the exchange will do the needful. This is assuming there is liquidity in the market. I’d suggest you place a buy sell contract to identify how easy this process really is!
Sir,as you said that exchange will do the needful but i should atleast know at which price the exchange is going to sell or square of my position.How to know that???
Settlement will upon the expiry price if you let your contract expire. Otherwise you can specify the price by opting for a limit price.
Hi,
so TA of spot graph is one way of forming the directional view that traders use.. is there any other way that traders use to trade in futures ??
In fact I only look at the Spot chart to develop a directional view!
also from where do i get to know if that particular futures contract has enough liquidity??
On average if there are about 5-10 contracts being traded every minute then I would consider that as ample liquidity for retain traders.
Hi Sir,
I am first time visiter of your chapters,and i can say this is the best content i ever had.A very simple and a very clear content,it it just like a teacher wow know how to teach.
First query:say i purchased a future at 200 per share with a lot size of 100 and a margin of 20%,so basically i paid 4000 rs and assume i incurred a loss of 100 share in the end so basically i loss inr 10000,so how they will recover rest 6000???
Second query:Somewhere in chapter u wrote,Assume on 24th Dec 2014, the stock price of TCS has gone up from Rs.2374.9/- to Rs.2450/- per share, by virtue of the increase in spot price, the futures price would also increase. This means as per the agreement, I am entitled to buy the TCS shares at Rs.2374.9/- per share ………I think there is a take,cuz stock price was never 2374 it was 2359 or 2362???Please clarify this for me.
Thanks in advance.
kartik one doubt. suppose i hold 1 lot of bank nifty whose contract expires on 25 Aug 16.however on 25 aug 16 i find that i m incuring a huge loss. so can i decide not to square off and roll over my position to next month i.e to last thursday of september (like we convert from mis to cnc in stocks) or is it mandatory to square of position once the contract date is over
The August contract will be invalid after Aug month expiry…so Aug contract will be invalid anyway. So technically you are buying Sept contract as a fresh position…and as long you are sure that about your directional view, then you can stay in the trade.
so does that mean i have to square off my position mandatorily (which i will incur a loss in my case) and then retake a positon in next month futures or simply i can roll over my position from august to september without bearing any losses???thanks in advance kartik
Either which ways you will be settled for August contract (weather you sell it yourself or hold to expiry)..so you will have to incur the loss for Aug contract.
thanks kartik.love u n ur style of teaching
Thank you 🙂
there is loss in future trading but the turnover is more then 1 crore.what will be the income tax implication
Request you to post this query here – http://zerodha.com/varsity/module/markets-and-taxation/
Someone asked following query in comment but I guess you missed to reply…..Could you help with that????
Say i purchased a future at 200 per share with a lot size of 100 and a margin of 20%,so basically i paid 4000 rs and assume i incurred a loss of 100 share in the end so basically i loss rs 10000,so how they will recover rest 6000???
Well, the loss has to be measured in terms of Rupees and not number of shares. In case you lost 100 Rupees, then your loss is 2000.
If you haven’t suffient balance in your account your share will automatically be aquered off as soon as it reach to zero balance.
sir,in option trading can I squire of my position before the day of expiry or I should wait for the expiry date..for example I bought one lot of DLF ( CE ) On 25 /08 /16.the option expiry date is 29/09/16 sir, can I squire of this option before the expiry date of 29/09/16 or I should wait till the expiry date 29/09/16
You can square off anytime before the expiry and book your P&L.
Suppose I buy future@2520 at the same time coressponding underlying is @2510, next day underlying is @2515, what will be my profit/loss?
To calculate the P&L you should look at the futures price, not the underlying’s price.
Is it neccessary that if the price of underlying in spot market also the future price increase?
Thats how it works – both futures and spots move in tandem.
Could you please answer my query.
If contract is held till expiry in future and it expires.
Then does one need to settle profit/loss only or take delivery of stock too.
If need to settle only profit/loss then why is it called obligation.
Settlement is only in terms of cash, there is no physical (stock) settlement. Its called obligation because you are bound by market regulation to accept the P&L of the position.
on expiry will future price be always lower than spot price, or could be vice versa based on rollovers or bullishness
They both will be same.
Hi Karthik,
I read that trading in F and O ban scrips attracts penalty of 5k per contract. Is this correct.
And is it applicable even if contract is closed same day(intraday sold off too).
When you buy a security which is under ban period then you maybe assigned a penalty. Hence its best to avoid stocks in ban period.
How we come to know that particular future stock is banned by stock exchange ,on the trading platform is known or news any other means of article .
Check this link – https://zerodha.com/margin-calculator/SPAN/ , the banned contracts are highlighted in Red.
Thanks Karthik.
Would like to know zerodha policy in this regard. Is it correct to assume that scrip was in demand and as it exceeded possible quantity it goes into ban. And so as soon as its out of ban it would show good movement.
Risk could be number of days it doesn’t come out of ban and NSE fine.
Another question is : why rollover is done. when anyhow existing contract is closed and reopened.
What does 1 gain by rolling over. Or is it just terminology for this action with no real advantage.
Scrip gets into ban period when maximum open interest is reached. Some details here – https://www.nseindia.com/products/content/derivatives/equities/sec_ban.htm
Rollover is just a terminology.
I have a kite account. how do i participate in futures trading?
You develop a view on the stock (either bullish or bearish) and act upon it by either buying or selling the futures.
lucid language in which you explain the concept is highly appreciable.. Replies to the quarries further adds to learning process. My question is regarding calculation of profit in futures. My understanding is that the profit or loss on future trade is calculated on the basis of price prevailing on the date and time of exiting from the position or expiry date as the case may be only, and any fluctuations in the intervening period have no bearing on it. except perhaps margins have to be maintained sufficiently to cover any down fall in futures price.
Thanks, and I’m glad you liked the content here 🙂
The only price that matters for P&L calculation is the end of day closing price.
Thanks for your reply that too on Sunday it self I had read only chapter 3 on futures I ought t o have read chapter 5 and all other material on the subject before seeking clarifications. i have only peripheral knowledge of stock market, but your write ups have generated interest in the subject .Who knows, it may be turning point .
I certainly hope it, especially towards a positive direction 🙂
I am sorry if my Question is nt making sense.
in future contract if i am not correct as per my expectations , and i am in loss , still i have to buy that share lot with loss at the time of expiry date ? am i right ?
if i will anable to buy
You can choose to square off the position and cut your loss anytime.
lets say i place a limit order=
Buy 1 lot nifty futures limit order Rs 8100 (NRML)and the order gets successfully executed.
Now after an hour i want to square off the existing position and short 1 lot nifty, for this i place the order as follows=
Sell nifty futures 2 lot limit order 8120(NRML).
WILL THIS ORDER SQUARE OFF THE EXISTING LONG POSITION AND SHORT 1 LOT ?? or we have to first square off the existing buy position first and then place a separate short order?
Yes, this will net off (square off) the existing position and create a new short position.
Incase I have purchased 1 lot of a future (assuming TCS lot size 125), By means of square off OR selling I have to sell the complete lot i.e.125 or can i partially sell from the lot (assumption sell 75 in profit) and hold on to 50 from the lot? Is partially selling allowed in futures??
All transactions is in the multiple of the lot size. You cannot transact in partial units.
hi sir, i want buy one lot of nifty future of january2017. how much money i need to purchase that with present nifty trading value.
About 49K. Check this – https://zerodha.com/margin-calculator/Futures/
Hi. Can you pls clarify if the below statement was a typo. You say : I have a counterparty who is buying 125 TCS shares from me at Rs 2374. Its actually me who is buying TCS at 2374, isnt it? I am not trying to identify typos, but just want to make sure I am getting the concept right.
What does it mean by “I now own 1 lot of TCS Futures Contract”? Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from me (counterparty) at Rs.2374.9/- per share.
I’m not sure if I’m addressing your exact concern. But I hope this helps –
When you intend to buy the shares (before placing the order) you are considered a buyer. When you’ve bought the share, you are considered a shareholder/futures holder….and when you intend to sell the existing shares you are considered a seller.
Hi Sir,
Thank you very much for the teaching very easy to understand for newbies like me . I would like to know whether you would open a topic on futures spread trading especially on commodity like FCPO ( Crude Palm Oil Futures) too?
Thank you, rgds
Thanks. Yes, its on the to do list. Maybe sometime in May-June this year.
Hi Karthik,
First of all, thanks a lot for your easy-to-go explanations and great education material. I appreciated your teaching style elsewhere as well, but it seems no appreciation is enough – you have designed this education blog so very well ! Really a great piece of work.
—
I have initially did some successful trades in Options for last 2 weeks, and with some confidence & this tutorial, I tried to explore futures trading today. It was a successful experience with Rs. 2500 net profit. And I am happy. Yes, the amount seems ridiculous, here people talk about lakhs of Rs but I am a small trader :)) I just took some liquid scrips (Infy, Airtel, LIC HSG FIN, Tata Steel). I followed their charts (1 min intraday) and tried to identify a trend or pattern. When I felt confident, I took a position long/short, and glued myself to the terminal. With a small movement of the scrip, I came out with a small profit. My luck helped me in the first trade. I got 500 Rs. profit. Then in the 2nd trade I put a stop loss such that my loss will be limited to Rs 500 which I just earned. I did not wait for long and with a small profit itself I came out. May be just 0.4 or 0.5 points movement of the underlying price. I repeated this for 6-7 times in various scrips and started collecting small profits. Together end of the day it is giving me Rs 2500 after deducting the brokerage, tax etc.
—
Now the question is here. I have double checked with Zerodha brokerage calculator and it does show that I am in profit. This is my first time in futures. So I am little surprised – is it really so easy ? Or am I missing some hidden charges or taxes which will eat out my profit ? I have this doubt because I think it is very easy to do and anyone can do without much knowledge about the business, global & national events or even without any robust risk management. Just follow the chart for 15-20 mins at a stretch, develop a feel how it is behaving and take a chance or come out. If it is really done in this way, then I am fine. But I thought I will double-check with you before I put myself into some unknown problems. Trading in futures seems so much easier than options where I was playing for last 2 weeks (and both of them give much more return than Equity, needless to say).
—
Thanks in advance. Please help me to understand if there is any risk I am unknowingly taking or if any other taxes or charges applicable apart from what is shown in Zerodha brokerage calculator.
Sudipta – Congrats on a successful trade 🙂
Yes, it is that easy. You just need to identify a stock, observe its price movement, and place a trade. But as you might have guessed, this simplicity can be quite misleading especially when you see price going against you.
Just keep at it, be rest assured the markets will teach you few valuable lessons. Hopefully, this should not come to you at a high cost 🙂
Good luck and happy trading.
And the market taught me the lesson today 🙂 I was playing with Infy on the long side. My intention was to capture 1 point movement, that is enough. Before I could even put a stop loss order, the price moved down by 10, and then as I was perplexed, it just went down by 20 points more. All that I earned in last 2 weeks, vanished within few minutes. Lesson learnt: We should stay away on the result date. Infosys result was not really so bad to give up all gains, but market behaves in its own way. Better to stay away on the result date, specially for new traders like me.
—
I will build the profit again bit by bit whatever time it takes. Happy to learn 🙂
Well, the result day can offer some really great opportunities. You will discover this when you learn options. The bigger lesson I guess is on estimating Risk to Reward expectation of a trade. You need to ask yourself if a 1 point gain on Infy was worth the risk?
Hmm true. Actually I understood the real reason behind the damage was a delay in putting the stop loss. We should use BO type order with a stop loss. I was not aware of it. I now learned. I was manually putting the stop loss order after the execution of the primary order, and there was 1 min of delay or so. And I had to pay a big cost for that. Otherwise the loss would have been limited. You are very correct that we must judge the risk-reward appropriately. After we assess that, we need to use stop loss for limiting the loss. That was my bigger mistake.
—
I have a technical question Karthik. I analyzed the whole situation and here is the background. The price was hovering around 993 – oscillating within a range from 991 to 999. It traversed that range for at least 6 times (around 9:40 AM). It already corrected from 1024 to 992 and then it was range-bound. I got convinced and went for a kill. I admit my mistake. The question is different. It was at 993. I placed the order and it was executed. I was on the 1-min candlestick chart. I was looking very closely for each granular oscillation of the price. Suddenly, really suddenly, within a moment it went from 992 to 972. And the volume for this moment went up very very high. This volume was the highest trade volume in the day. The price dipped by 20 points in a single moment. The question is, how this is possible ?
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If I assume that some big guy put a buy order of a big quantity, even then, he must have not ordered at 972 because the current price is 992 and his buy order for 972 will not get executed. There must be so many other buyers with price between 972 and 992. So the price is supposed to come down in a gradual manner – not all of a sudden. If I assume that some algo trade was set with decreasing price quote at each small difference and with high volume, then also the price should come down gradually with execution of each order. I could not understand how an extremely liquid stock like Infy can fall by 20 straight points just in a moment (it already corrected by 30 points – so there must be enough buyers in the system). If you can technically explain such sudden fall, I will be very glad. I want to learn so that I understand what is happening behind the board.
—
Thanks in advance.
Yes, SL plays an important role, but end of the day it is just the logistics part of the trade life cycle. The real gravy is in identifying the right opportunities with the right risk reward ratios.
Quite possible, it had a massive correction from 1024, consolidated at 990 range before the trend continued further down. You will get an understanding of this when you look at the nature of corrections and uptrends across multiple stocks and indices.
Chances are there was a big short order placed which would resulted in such a dip. It could have come from an algo or a trader.
Hey Karthik thanks for valuable lessons. I am not able to understand the full cycle of Future contracts here. I understood the perspective of person buying the contract or trading it with someone else before expiry. But how does this contract cycle start? I mean when you say TCS stock went down but you still have to buy 125 shares from “someone” at high price, who is this “someone”? Or how to become this “someone”?
I am taking a guess: does this “someone” makes the contract than he want to buy 125 shares from owner of this contract at 24th Dec? If yes then how to be that “someone”, make the contract and list it on exchange?
*does this “someone” makes the contract that he wants to sell 125 shares to owner of this contract at 24th Dec*
Sorry for error.
Replied earlier.
Hi,
These modules are gold . Thanks for such lucid explanations
My question
So If A enters into a futures contract with B, does it mean A ends up actually buying 125 shares of TCS held by B making me a percentage owner in TCS ?
“it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from me (counterparty) at Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th Dec 2014.” . I am actually buying the shares from him right ?
No, these are just contracts with expiry dates and the difference is cash settled. So you won’t really be a shareholder in the company.
This someone is called the counter party 🙂
For example, I place an order to buy TCS futures on my terminal at a certain price and you place an order to sell TCS futures at the same price, then assuming the price and quantity matches a trade happens between us.
For me, you would be the ‘someone’ and vice versa. We will never know the identity of someone, but the exchanges would know and their risk management mechanisms ensure the money is credited and debited as per how the trade evolves.
Sir when we place order in nifty future then it get placed at current market price or it get placed when again market touch the price. Please reply it I post this again.
Depends on which order you place – limit or Market order. Market order means you get Nifty futures around the current market price, but limit order you get it when the market touch the prices you have specified.
What will happen if I forget to square off the future contracts before expire date and it comes to my day after expiry..?
It gets auto settled by exchanges.
what will be total amount received back if I was in loss.
i.e buying price: @10 , lot size 1000 and price on expiry day(closing price): Rs 9.90
Actually I have confused with option trading where the price comes to zero on expiry day..
Suggest you start from basics 🙂
http://zerodha.com/varsity/module/option-theory/
Above query is concerned with future trading. Actually I do option trading but very new to future trading
Ok.
Hi Karthik,
is it necessary that underlying ( Market ) Price is always less than Future contract value ?
coz today when i went to NSE site for derivative quote i found that future contract value was lower than Underlying Price (Market price).
i know that derivative value is depend on Market price it will change as per market price fluctuation but is it possible it can be a less than Spot price ?
No, not really. If the Fut price is less than spot, then Fut is said to be under discount….and of the Fut is higher than spot (which is the case normally) then the Fut is said to be at a premium.
Ok , Thank you so much for your reply. 🙂
Welcome!
Dear sir,
I have a basic question in Options data positions. If open interest on ITM call options and OTM put options have seen huge reduction & increase in open interest in seen in OTM call option & ITM put options, shall we construe that the stock is in bullish momentum. Also, if the nearest OTM put option has shown increase in open interest, it might indicate that it is hedged at that level for the long positions in the stock. Would you be able to clarify.
Regards… Jamuna…
I think you will only be complicating the matter by combining the moneyness of an option along with its OI. I’d suggest you look at spot data long with its volume to arrive at a broad overview.
Suppose I have a 1 lot of Just Dial for next month i.e. March. Now it goes into a ban. I am sitting on profit. Can I square off my position during the ban, or Will I be incurring penalty. Also what if the stock remains under ban on Expiry too. Than, At what price will Exchange sell my lot. Will it be sold at price before the day of ban period or at the underlying price on expiry.
You can only unwind the position during ban period, no new fresh positions can be initiated. So, yes you can unwind. Remember, only derivative contract is banned, not its spot. Spot and futures prices converge at the expiry. Hence, the futures price will reflect the spot …even during the ban period. So that will be the price you will get settled at.
It means that during the ban period, future price will change daily following the spot…and we can only unwind the position..no fresh position is created?
Yes, thats right.
Sir , I don’t understand few things.
Q1 When I agree to buy a future contract do lot*price i.e the future amount immediately gets transferred to the seller account?
Q2 do the seller at expiry quickly buys the stock at low price(assumed) in the open market and sell that to us .So basically if the prices really go down then how does seller take advantage of low price in the market(at expiry)?How does he realize the profit?
1) No, margins are blocked for both the seller and buyer. They are released once the trade is squared off. The daily P&L are adjusted via M2M.
2) It is all about the point of view. The seller makes a profit if the price goes down and buyer makes money if the price increases.. Remember, at a given point only one of them makes money. It is all cash settled and there is no requirement of actual deliver of shares.
From whre can i get the open interest data for nifty and bank nifty?
You can get that from PI or directly from NSE’s EOD bhavcopy.
Sir do you take stock futures for swing trading ? Is it advisable ?
Yes, you can take up any trade as long as your conviction is high.
Hi,
Is it possible to close the lots one by one ,even if its bought at the same time and how to do that ? I normally click exit.Haven’t tried futures yet with zerodha,so before I do wanted to clarify this point.
thanx
manoj
Yes, you can exit piece by piece. Suppose you have bought 10 lots, click on F2 to invoke the sell order form, enter the desired number of positions to sell (maybe 2 or 3) and submit the order. Thats about it.
If there is a bearish sentiment in the stock for long run (next one year). Should the spot price be above than near month future price and near month future price be above than far month future price ( 420 (spot price) – 410 ( Near month futures price) – 400(far month futures price))
If there is a bullish sentiment in the stock for long run (next one year). Should the spot price be below than near month future price and near month future price be below than far month future price ( 420 (spot price) – 430 ( Near month future price) – 440(far month future price))
Please correct if my view is wrong.
Thanks
Irrespective of the sentiment in the stock, by default the futures tends to be higher than the spot. They invert due to short term supply demand mismatch.
thanks for reply. which means for bearish trend futures should be lower than the spot price. pls correct if i am wrong
No, nothing like that. By default futures will trade higher than spot.
how to calculate F & O profit for income tax purpose. Iam a individual and buying & selling stocks for my gain or loss.
F & O is treated as a business gain/loss in the hand of individual ?
Check this module – http://zerodha.com/varsity/module/markets-and-taxation/
Hi, I have seen we can trade future as Normal & MIS. Trading Normal future were already explained in depth. Can you please help to understand how to trade future as MIS.
MIS is just an intraday order. All MIS orders have to be squared off by 3:20 PM.
Hello karthik sir
Sir Why there is standered lot size concept instead of just single loose stock or index
For the benefit of providing leverage.
Okay….. Thanks sir
Welcome.
I have account for equity and commodity in Zerodha. How can i start trading in future?
You just have to login and start trading. I’d suggest you attend our daily online demo to get stared. The next demo is tomorrow @ 2:30 PM. Check our youtube channel.
if i buy nifty future and square off on same day is that come under non speculative income ?
yeah.
What is required margin in margin block process, is it the contract value or the % of contract value(Margin amount) which we have to pay as advance before entering contract?
The entire margin as such is mandatory.
Sir, what is the minimum days or time limit in which we can squareoff the future trade?
Depends on the expiry of the derivative contract.
As I mentioned earlier, it really depends on your expectation. You can square off the very next second you entered into the contract or hold till expiry.
If i incurs a profit or loss in future trading, would i have to buy and then sell to the partner whom i am in contract with or money will be automatically added or deducted from my trading a/c ?
No, the exchange/broker takes care of matching your order and doing the settlement.
From above example, What if i had short 1 lot of TCS
1. Would the margin cost be same, &
2. I would have been end up making the loss of Rs 18044
1) Yes
2) P&L is the difference between your buy price and sell price multiplied by the lot size.
Thank you for Answers?
Welcome!
underlying spot market value of 2359.95 and future value of 2374.90. the difference is 14.95. isn’t this is opportunity under calendar spread ?
Yeah, but do check the cost of execution.
cost of execution ?
Yes, please do check this – https://zerodha.com/brokerage-calculator
Pleade give me a reply
1. Can i sell the lot share tomorrow mornong ( future trade) which is buy today evening ?
2. and that have any rules and regulations?
1) Yes, you can
2) Nothing specific, as long as you have the necessary margins.
Sir, What about the premium we need to pay to make a future contract.If the appreciation of the asset is less than the premioum, will it be a loss
In futures, there is no concept of paying a premium. In futures, you only pay a margin.
After you squared off your position at Rs.2460 then the futures contract transfers to some other buyer.
Now imagine this scenario-
At expiry, the price is suppose Rs.2400 then the current buyer of the agreement has suffered a loss and the seller(the original one who initially entered into the contract @ Rs.2374) of the agreement has also suffered a loss, then what happens?
Do both of them pay up? Where does the money go? To the broker?
And also can you please explain a full cycle of a contract at 2 times squaring off till expiry from each of the contract holders perspective..
Sorry, dint quite get that, can you please elaborate?
I meant how does one full cycle of a contract work(when one buyer squares off their position and it transfers to other buyer). How does the transfer of money look from each owner’s perpective?
Suppose A and B entered into a contract and then B squared off and sold it to C. Now A squared off and sold it to D. Final contract between D and C. So how does the money transfer look like in this situation?
Ah ok. Remember, futures works on a M2M basis, so whatever if your P&L obligation, at the end of the day it gets settled. So does not matter what the counterpart does…the final contract could be between A and D as well…margins are blocked and everyday the funds are settled via M2M.
In derivatives, especially futures, one of the parties always makes money…i.e either the buyer or the seller….and at any point, only 1 buyer and seller for a given contract.
”At expiry, the price is suppose Rs.2400 then the current buyer of the agreement has suffered a loss and the seller(the original one who initially entered into the contract @ Rs.2374) of the agreement has also suffered a loss, then what happens? Do both of them pay up? Where does the money go? To the broker?”
But if the price at expiry is 2400 then the one who bought it at 2460(new buyer) has also suffered a loss and the original seller (2374) has also suffered a loss except the buyer who exited at 2460- he made a profit right?
Is this correct?
Ok, if market is at 2400, and if a trader has shorted at 2374, then yes, he is making a loss. Also if a trader has bought at 2460, the he too is having a loss. The counter parties to both these trades i.e buyer at 2374 and seller at 2460 are making money.
hello, pleas answer as soon as possible, its urgent
suppose i buy a future contract from B at 2315 per share but i am squaring off and selling it to C at 2460 per share. .. so new contract will be created between the B and C for rs 2460?
B will be selling at 2460 at the time of expiry?
if even c sqaures off again the selling price of B will change?
Since B has sold at 2315, his short price is fixed at 2315 (unless he averages along the way). If C decides to square off then it would be with B or a new market participant.
i didnt understand… u mean to say when i sell my futures before expiry to C… at the time of contact expiry C will be paying me 2460…from that i will be paying 2315 to B?
OR ELSE
C’s purchasing price will be 2460 wheras B’s selling price 2315 wont there b a mismatch?
Remember there is a M2M that occurs on a daily basis. So money is adjust/settled on a daily basis.
when A has bought futures for 2315 and sold before expiry to B for 2460 who will be paying the profit 145 per share to A?
It would come from B via M2M.
i am really sry karthik…. but i still hav some more doubts…
A has bought futures from B for 2315, it means at the time of expiry B will be selling at 2315 no matter wat the marketprice is…
but before expiry A sells the contract to C at 2460…thus the contact between A and B has come to an end…. and new contract has been created between B and C? or A and C?
When A has bought from B, B could either be squaring off an old trade or could be creating a new one. Assuming its a new one, and there are only 3 players in the Mkt, the trade is now between B and C.
and C will be purchasing at the time expiry at 2460 ? from A or B?
B
Hi Karthik,
What happens to open futures & options contracts if stocks split?
Doesn’t it change the strike price?
The contracts are revised and adjusted for the splits.
Why would someone sell futures for lesser price(lets say after 3 months) and not sell that today. What is benefit for keeping it open.
Maybe the person feels that the price will be much lower going forward.
Sir, i am new trader with you.
I have a query that if i want to buy HDFC Limited Future, then what type of buy order need to place (CNC or MIS) ? & how can i carry forward my position till i want ?
Please Clarify my query
MIS if you want to do intraday, NRML if you want to carry forward your position overnight.
First of all it’s a good post
And my question is that, I bought a future with Aug expiry. As everyone knows the expiry will be the last Thursday of the month so it’s 31st in august but the future shows as aug17fut. Does it mean the expiry date is 17th ???
Which futures did you buy, Ganesh?
South india bank
Ok. Request you to please check again. There are only 3 futures contracts available, expiring on 31st Aug, 28th Sept, and 26th Oct.
Hi Karthik, I’ve read your contents and it’s very great job, keep it up.
I’ve a question for you regarding arbitrage model of Trading. Please let me know if I’m correct on the below scenario.
Xyz spot is at 100rs and I have purchased 1000 shares (1 lot=100 shares and I purchased 10 lots) which means I’ve spent 1L and same time I’ve short sold xyz futures @110rs of 1000 shares (10lots) which means CV=110000rs however if we think margin as 10% it’s only 11000 blocked in my trading account. So total 1L spent on spot and 11000 blocked by selling future.
I’ve heard that both spot and future price will be same on the settlement day. Let’s assume spot and future price to be 80. Now I’ll sell the spot @80 and I’ll be in (80-100)*1000=-20000rs loss and now I’ll also buy future@80 so here my blocked amount will be unlocked rite? and also (110-80)*1000=30,000rs profit, so finally my Net profit is 30k-20k=10k.
1) is my calculations correct?
2) when I’m buying future will there be any amount blocked or just unblocking of previously blocked amount will be done?
3) are there any hidden charges apart from these?
4) if you have any material on arbitrage model Trading, please share the link.
From
Pradeep, 7829443460, [email protected]
Yes, upon selling the futures, your margins will be unblocked.
1) Yes, it is correct
2) Upon square off, the margins will be unblocked
3) No, however, you have to be aware of charges applicable – https://zerodha.com/charges
4) Nothing as of now.
Many thanks Karthik for your response.
1) So in futures Trading only money will get blocked and unblocked and p/l is calculated only according to (sell price-buy price)*number of shares.
2) in case of short selling also money will be blocked once and unblocked after buying again and p/l is again as per above formula.
3) we need not wait till the settlement date and can square off anytime whenever we want.
Can you please confirm if I’m right on above all.
Many thanks again!
1) Yes. P&L is the difference between buy and sell price times lot size minus charges applicable.
2) Yes
3) Yes – you can square off anytime you wish, just like in the case of options.
Is short selling of futures possible in zerodha?
Yes, thats possible. Make sure your trading account has F&O enabled and make sure you knowledgable about trading futures and options.
Hi karthik,
You are doing excellent job, by teaching newbie like me.
But, I have a question, you said that in futures one party suffers loss and his counterparty books that as a profit.but, if you see the nifty it is continously rising from years to years. If, someone is buying nifty futures continously as the futures expires he buys the new futures contract and the making the profit as nifty moves more high point, in that case who is suffering loss. Please explain…
The guy selling the futures to the buyer 🙂
Remember, there is always a seller and a buyer who make up a contract.
If a contact is made by a seller and a buyer. Then why is the difference in buying and selling quantity of contract. If a buyer and a seller makes up a contract then it needs to be same.
Buyers and sellers make a contract. For example, if I want to buy 10 lots of Nifty, then those 10 lots of Nifty can come from 1 seller or 10 different sellers.
Thanks karthik
Welcome.
hello sir,
when i sell future contracts to mr x at 2500 and before expiry mr x sells it to mr y for 2600 ….and at the date of expiry price is 2550 mr y will pay 2600 to whom? me or mr x?
can u explain the steps n detail…like who will get how much profit….
and when mr x square off… does my future contract comes to an end?
X is out of the market since he bought from you and sold to Y. So upon expiry, both you and Y have an open position and therefore the contracts will be settled between you both. Here X makes a profit of 100, you will lose 50, and Y will lose 100.
y will lose 50 ryt? so when x sells to y at 2600.. i pay him the 100 according to m2m and at expiry y pays 5o to me and hence my net loss is 50… am i right?
Abinaya, I’d suggest you try and do a simple low-risk futures trade, maybe 1 or 2 lots if USD INR futures. When you experience a futures trade, you will understand this better 🙂
Am a bit confused with futures and the original stocks 🙂 For example, I bought 2400 (1 lot) of ITC at the rate of 3 INR with trigger price of 315 August 31. Right now it went upto 0.50 INR which incures a loss for me.
So what you mean by the term “agreement”?
1. Can I buy the ITC stocks at whatever the price when I bought its futures? Lets say It was 280 INR and now at 290 INR – possible to buy this at 280 as per agreement? If so how many stocks I should buy and on which date?
2. I know I am going to loose some money as there is no scope for ITC to get up to 315 in next few days. So can I match this loss by buying ITC stock? Lets say I bought when it was 280 , now it is 300 – not much improvement in futures price though, I still see loss there.
3. If I can buy the ITC stock is there any constraints in numbers (like need to buy exactly 2400 stocks) or any date (like August 31 only?)
May be the queries look weird 🙂 BUt I am in a mess haha!
If you buy a futures contract and the price goes up, then you make a profit.
1) You can buy it at the available price in the market
2) Stock price and futures converge on the day of expiry
3) Yes, you will have to buy it lots and its multiples. So if 2400 is the lot size, then you will have to buy at least 2400 or in multiples of that.
Good luck and happy learning.
Dear Mr. Karthik,
I must congratulate you on putting great efforts in preparing the contents for a complex field of Stocks/Trading. All the topics have been presented in easy to understand language and are very interesting to read.
Kudos to you and Zerodha team. Keep up the good work.
Big fan of yours,
Manoj Diwakar
Thanks for the kind words, Manoj. I’m happy you liked the contents here. Good luck and happy learning 🙂
Karthik,
If I have a position in futures and On the expiry day:
1. If I don’t take action, system will automatically square off right?
2. What specific time of the day it happens?
1) Yes
2) The position would be settled by the exchange post market closure.
Karthik,
This is more of a question on Kite Trade tool.
If i have a CO “Short” order for Equity of 100 stock at Rs. 200… Then a SL order of say, Rs. 203 is also placed.
Now, If i have to book profit when stock is at Rs. 197 for only 50 stocks ( i assume price will bottom more)
1. Can i place a buy for 50 stocks and should i click on “BUY” for that scrip? or any other menu option available?
2. What happens to the SL order for 100 stocks?
You cannot split the quantity in CO, Ravi. It will be applicable to the entire lot.
Hi Karthik,
Wonderful content.
What will you assume has healthy liquidity ? I mean when I checked the Infy Sep Fut, the traded volume was 29,915 (31Aug17). Looks quite low to me.
Regards
Jim
Jim, this really depends on your trading size. For a retail trader, trading 1 or 2 lots, 29,915 is very decent liquidity. For an institutional book, this may not be.
Thank you Karthik.
Few more queries:
1) For Infosys, I see that Oct Fut is trading lower than the Sep Fut. But according to your content the current month will be less than mid month expiry. Any reason ?
2) If we but Futures as NRML but sell the same day. Can it be done? If yes, will it count as Intraday ?
Regards
Jim
1) The current month less than mid/far month is as per the theory. However, markets could be mispricing (which is common), you need to check if the mispricing is offering you an arb opportunity
2)Yes for both. If your objective in intraday, you may as well do a MIS
Hello Karthik,
I want to hold Stock Futures contract for a couple of days. Regarding this i have a query:
To identify a trend we have to look spot price charts? Do the resistance levels on spot price charts hold good for futures?
i notice that sometimes when a Doji is formed on a daily chart of a stock, the futures show a different candle.
In short, up to what degree we should depend on a spot price chart to trade stock futures? More importantly, What is the thought process behind taking this type of trade?
I have tried to search the web for this but couldn’t find a satisfactory answer. I have decided to trade channels using oscillators, so this query is holding me back to place a trade- average holding time 2-3 days- Initial investment around 5 lakhs.
1) Yes, S&R on spot holds perfectly good for futures
2) Possible, but the difference is not much
3) I personally depend on it to a great extent
Good luck.
Thanks for the response. That clears my doubt.
Cheers!
Sorry could be silly, but just noticed you saying “In the next chapter we will discuss about margins, a very important aspect of futures trading. ” But next chapter is actually “Leverage & Payoff”, you may want to correct it.
Leverage is all about Margins, go ahead and read the chapter 🙂
How to buy future stocks?
1.I purchased future stocks in MIS,BO or CO to get higher leverage that means it’s a intraday activity & I’ve to sell by the end of the day.
2. If I buy future stocks normally then I can hold till the expiry date,Isn’t it or If i buy future stocks in MIs or BO then it’ll be squared off by end of the day.
Please tell me where I’m wrong or correct me kindly
1) Yes
2) Yes, NRML can be held till expiry of the contract
Why don’t I buy a certain amount in spot and sell it in the futures market since the prices are different?
You cannot buy in the spot and sell in futures, they are two different market segments.
Hello sir,
Is it possible to sell future just the day before ex dividend date and square off on the ex dividend date and earn dividend*lot size risk free arbitrage?
Futures position holders will not receive dividends, Aditya.
Sorry I framed wrongly , I meant on the ex dividend date the price of the underlying will decrease by the dividend amount right ? , So can i sell futures just the day before the ex dividend date and square off on the ex dividend date and benefit from lot size * fall in the underlying on ex dividend
Ah, not so easy Aditya 🙂
For small dividends, the prices don’t really change much. For large dividend payouts (special dividends), the contracts get adjusted.
Thank you very much sir
Welcome!
Hi, I have 2 questions:
1) what if i mistakenly place an order on an f&o security that was under ban? will the system execute this order or will it be rejected? how can i know about the stocks that are in ban?
2) if i have a long position in a Call option and the contract goes into ban after some days. on day of expiry it is an ITM option now. Because of the ban i was not able to sqaure off on time. even if no new fresh position is created during ban period, i will not be able to sell the contract during the ban period to some other party because for him it will be a fresh position. So what will happen in such a case?
1) The order will not go through. Check this to keep track https://www.nseindia.com/products/content/derivatives/equities/sec_ban.htm and also take a look at this – https://tradingqna.com/t/why-doesnt-zerodha-allow-intraday-positions-for-contracts-in-ban-period/11581
2) If the stock is in ban period – You can square off an existing position, but cannot initiate a new position.
Sir, which chart should i refer for futures trade, the eod chart of the stock or the future? One more question… Suppose Spot price of ABC stock is ₹100/-and future price is ₹130/-. My view on the stock is long. After analysing the EOD chart of the stock i decide stop loss price to be ₹10/- below of the spot price. So in the spot market my entry price is ₹100/- and stop loss ₹90/-. But, if i buy 1 lot future of this stock, then my entry is ₹ 130/-. In that case should I place my stoploss ₹10/- below i. e at ₹120/-?
Its really upto you. I generally prefer EOD chart.
You should look at the spot and place your bets on futures. So, in this case, you buy when the spot is at 100 and get out when the spot is at 90….I personally would not pay much attention to future prices.
Thank u sir for your guidance ….I will do the same…
Good luck, Sudipta!
Hi, is it possible to buy futures contract of Nov 2017 in this month for INTRADAY trading?
If yes, is there a higher charge (transaction charge/taxes/etc) for buying it?
Nope, charges are standard across all the contracts.
Yes, Nov contracts are available for you to trade.
hi Karthik Rangappa
my name is Sahil I had a question as u have explained in your chapters that the price of futures is derived from their underlying .like HDFC futures moves based on HDFC spot chart right .so we can make our buy and sell decisions based on spot chart of an asset and place trades in futures.So can a trader trade HDFC futures from HDFC spot chart by that I mean I want to place A BUY ORDER and place entries and stops on HDFC spot chart and as soon as my entry is hit on HDFC spot chart the system buys HDFC futures at market for me and later if my stop gets hit on HDFC spot chart then system sells HDFC futures at market.so this sought of conditional order facility is available with zerodha or not ?
Absolutely! You can (rather should) trade based on the spot charts. No, these conditional orders are not available.
what do u think is zerodha will work on it? .because as a futures trader I trade with IB brokers US-based broker which provides conditional orders for futures.please share this feedback with zerodha so they can work on it .and it will be convenient for futures trader in India to trade futures via conditional orders I think it is much needed.
what do u think is zerodha will work on it? .because as a futures trader I trade with IB brokers US-based broker which provides conditional orders for futures.please share this feedback with zerodha so they can work on it .and it will be convenient for futures trader in India to trade futures via conditional orders I think it is much needed.
I agree, Sahil. Let me bounce this off with our tech team and check what they have to say.
great appreciated your efforts
Cheers!
Sir, strategy that u told us in the Tech analysis finale (help u getting started) chapter will work in future and option trading???
It is just a guideline – you can use that to trade both futures and options.
Hey,
First of all, you guys are doing some great work! Thank you for all this.
Secondly, Is that a typo above section 3.3 or am I misunderstanding something?
Possible typo:
I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from ** me ** (counterparty) at Rs.2374.9/- per share.
Is it supposed to be “me” or “him”?
Supposed to be him, thanks for pointing out 🙂
Hi, Holding a futures contract, always changes the price at which I have bought. E.g the average trading price even for one lot came down drastically because the underlying price fell down since last 7 days. This even reduced my losses. Can you give the reason for this.
Ravi, your buy average will always remain the same. Your margins are adjusted on a day- to- day basis based on the day’s change. If the position went in your favour, money is added to your account and removed, if the position goes against you. You can read Chapter 5 of this Module explaining Margins in detail
are the future settled on daily basis??
Ex: ABC NOV futures i bought on 04 Nov for 100 lot size 100 expecting it will go up. on 07 Nov it went down by 90 but i didn’t square off on 07 Nov.
on 05 Nov end of the day will 1000 rs be deducted from my account?
on 06 Nov it went up to 120 but i didnt square off 2000 will be credited to my acount?
My point is will it be settled on a daily basis or the day i square off ( the difference between prices of spot and the price at buy).
Yes, futures are settled on a daily basis and its called the Mark to Market (M2M settlement. This is explained later in the module.
sir,
first of all i would like to thank you for your great effort for these basic knowledge of almost all chapters of stock market.
secondly i want to ask a simple question.
can bank nifty future be traded in intraday?
and if yes then sir how profit and loss be calculated on nifty future bank .
if possible then please explain with example’
thanku once again sir.
Yes, you can do intraday trades on Bank Nifty. The P&L will be the difference between your buy and sell price, after adjusting for the applicable charges.
Query about roll over:
I had bought (buy) ALUMINI at 136 & current price is 134.40. So my current trading loss is Rs.1.6. So my current trading loss is Rs.1.6
If the price goes down more, I wanted to rollover the current contract. I have understood from above discussion that I have to sell this current contract & buy next months contract whose current value is Rs.135. (Roll over loss – 135-134.40=0.60)
Question:
So, will my loss be just Rs.0.60 or Rs.2.2 (1.6+0.60=2.2) ?
You will have to close the current month contract at 134. So your loss will be 2. However, when you buy at 135, the P&L will depend on what price you will close this. Good luck.
[…] https://zerodha.com/varsity/chapter/futures-trade/ […]
1.) After expiry exchange settles positions, but at what price and how they calculate that ?
2.) Once contract expires, price of that contract is exactly same as that of spot on that day ( prices at the time of settlement, when exchange settles ).
3.) After expiry settlement process and calculation is same in F&O, commodity and currency ? If different then plz provide all the details.
1) The settlement happens on the closing prices
2) Yes, price of spot and Fut converges into one price
3) Its the same, from the trader’s perspective.
Hi Karthik,
There are many queries regarding arbitrage on spot and future market.
Is it possible for you to explain in details like how these transaction will take place e.g. buy/sell in spot and sell/buy in future.
Regards,
Mukesh
Hi Karthik,
I have a query regarding intraday future trading.
Yesterday I completed my 1st intraday future trading for Nickel. Incurred loss of 500. Initially, I had added 5000 to my account. Once I squared off my position, it was showing free cash of 4500 till yesterday. But today, account value is displayed as 0. Is it due to weekend? If not, where did 4500 go?
Can you log in and check again?
Is Futures trading (not options, only buying and selling of Futures contracts) a zero sum game?
Yup, all derivatives are.
I have a Hexaware Future position with a put hedge, when i bought the future position the discount was around 1 rs to stock on 2nd jan and today on 5th jan
the discount has increased to 5-6 rs why it is so.
Is it just due to less demand in future or some corporate event is expected before expiry.
No Dividend has been diclared
5-6 is quite normal. The difference between the spot and futures is mainly due to the demand and supply situation.
ok, its almost 1.8% still its normal….. want to know why does this happen when stock is going higher
does this imply there is strong demand for stock but not for future.
Its the cost of financing. Remember, futures contract is a leveraged instrument.
Is all the Equity Future Orders are Market Orders. (Both Buying & Selling the same script) ?
I was experienced in Kite Mobile Platform that, When I was entered the SL-M (Trigger Price) to sell the Future; it went down as market order. It was twice I faced the same problem.
No, you can place limit orders as well.
In SL-M, M stands for market order. Hence it was triggered as a market order.
Hi Sir,
Well explained.As you provided few examples, for beginners like me it is really helpful.Got an idea how to buy and sell future contracts.But could you provide the strategies to pick future contract or if possible share Some experiences of traders zerodha has come across.
Thanks.
Archana, have you checked out the current ongoing module on Trading Strategies? Check this – https://zerodha.com/varsity/module/trading-systems/
if i want to buy call above certain price but the price is now 2 or 3 rs below if i place order i think so it will get executed..? for eg bank nifty ce 27000 is at 100 but i want to buy if it comes above 103.5 how should i do this sl order ? and 1 more doubt if i want to buy future of bank nifty above certain price in bo order how should i do?
You can always use a Stoploss buy order for this. The order will get executed at the exact price you want. You can use BO limit for that.
Hey karthik,
Can you tell me what strategy you use for nifty futures. I want to do positional trading with 3 month future.
I am investing in stock market for one year, but new to futures. Doing some demo trading of the future.
So, suggest me any good strategy which could work perfectly in nifty futures
I’m discussing all the strategies in the ongoing module on Trading Systems, check this – https://zerodha.com/varsity/module/trading-systems/
hi karthik
I am confused about the settlement mechanism of Future and Option on the expiry day .I want to know whether LTP or CLOSE PRICE is used to settle the contract.
In one case i shorted ICICI BANK FUT for 360.75 . The CLOSE PRICE was 360.8 and LTP was 360.00. I got contract note showing loss.
But when last month I shorted ICICI BANK 315 CE then LTP was 313.3 and CLOSE PRICE was 315.3 on the expiry .The contract expired with my Contract In ITM.
Can you please clarify.
Thanks
Its the close price based on which settlement happens.
As we know the short position cannot be rolled over to the next day in equity trading. Is it also same for futures ? Or can we carryover our short positions to the next day ?
No, you can carry forward the positions in Futures.
Hi Karthik,
Thanks for your support, I have 2 questions, please provide your guidance…
1. Can I place the Stop Loss & Target for Futures Contract in NRML trades?
2. How can we know the timings of result announcements like quarterly, half-yearly & annual; Is there any website which provides?
website for results is go to motilal oswal it is good.
Is Buying or Shorting Future contract same as Buying or Selling any stocks in Intraday? Only difference is here you have 1day time there 1months time?
Yes. You can do an intraday trade on Futures and also carry forward the position till the contract series expires.
HI
when searched a stock say SBIN in future market it showing three options like SBIN Feb FUT at 296.45 , SBIN Mar FUT at 297.30 ,SBIN Apr FUT at 298.75 and the current price is at 296.40 . If i want to buy a contract of SBIN Apr FUT today at what price can i buy it ? can i buy April stock at current market price ? if so whats the difference between this three stock types ??
At any point, you will have 3 futures contracts available to you. The difference is in the expiry of contracts. If you are looking at short-term trade, buy the current month contract i.e Feb. Spot price does not have categories like futures.
I’d suggest you read this module to get a better understanding on this.
Hi …
Just for clarification. If one is not squaring off his position before expiry of the contract; does he have to take delivery of the shares on the day of expiry? Which date would be considered for capital gain purposes? Further if one is squaring off before expiry of contract; would it amount to sort of speculative transaction as in intraday trades?
Thanks.
No not really. Everything is cash settled in markets. Futures trading is short-term in nature, hence short-term capital gains have to be paid. Yes, all derivative transactions are speculative in nature.
Hi, If a trading strategy works for an underlying asset, then will it work for its futures?
Yes, it will.
Why do some stocks has derivatives and others don’t?
This depends on the trading activity in the stock. Here is the selection criteria – https://www.nseindia.com/products/content/derivatives/equities/selection_criteria.htm
what is the timings of FUTURES CONTRACT entry to do intraday.
can we place orders in pre open session and place orders in AMO.
when i buy a contract in NRML, if price goes down of a share ,should we deposit extra money in account to continue contract till expiry.
If i buy 100000 shares of a company in EQUITY MARKET, should i have to place DISC QUANTITY and IOC in validity or i have to place through phone. which is better for that many shares to place an order.
Can i place that many shares at single /fixed price.
Please explain ,how to place an order of huge shares at single price.
1. Timings for Futures and Options is 9.15 AM to 3.30 PM. You can place NRML trades during this period. MIS orders can only be placed till 3.20 PM after which the auto square-off will run.
2. Yes, you need to maintain SPAN and Exposure margins to continue holding the position(SPAN margin is strictly required)
3. You can use either of the options you mentioned. It is ideal you use Disclosed Quantity, so that there isn’t adverse movement in the market and your order is processed in batches. IOC order is most likely to get rejected as the order might not get filled immediately.
[…] https://zerodha.com/varsity/chapter/futures-trade/ […]
Hello Team
As per the above materials i can understand that I can do intraday with futures as well carry forward the Futures for overnight so which makes me to ask few questions
a) If i want to do Intraday with future stocks i would have to use the option “MIS” and if i want to carry forward the future stocks i would i have use the option “NRML” right?
b) In “Intraday Future” stocks let’s assume i buy a stock @ 02:00 P.m and i square it off @ 03:00 P.m on the same day so whatever P/L i make is what am going to take home back right ?
Please clarify the above
1) Yes, thats correct. MIS/BO/CO for intraday. NRML for overnight
2) Yup, you take it all home assuming you are trading with Zeordha. Else, your broker will take a large part of it as brokerage 🙂
Hi Karthik,
What if both the parties (buyer & seller) opt out of the contract for whatever reason, before the expiry date?
Eg : Buyers are happy with the price maturity & they want to encash it. On the other hand the sellers want to withdraw as the contract is going against their calculations. So now, both the parties exit the contract but there is a long way to go.
And if there is a strong reason to say that the price will go up for sure then, who will dare to challenge the contract? And when there are no sellers , there will obviously be no buyers.
What will happen next?
And does the trade volume really matter for the majority to win, on the date of expiry ?
Please forgive me if you feel this question is silly! I’m a beginner & these doubts are popping up from the back of my mind.
Thanks
They can opt out anytime they want, in fact, this is the beauty of trading contracts via exchanges. However, they need to settle at whatever price which prevails in the market at the time of their exit. Also remember, different opinions is what makes the markets, as long as there are opinions, the prices will continue to move. There is never a consensus in the market.
Volumes are important, but not the only thing that matters.
lets say i hold a futures contract, lot size 100 (price RS 200) and dividend is announced Rs 2 per share. so next day price will open at 198. In cash market i know that dividend will be paid to me. what will happen to the futures contract?
The adjustment will effect on the ex-date and therefore the futures contract relevant to that date will be adjusted.
I didn’t get you. How will it be adjusted? Will the lot size increase or will i get the dividend amount ? Or is there any other way to adjust it?
Check this circular, you will understand better – https://www.nseindia.com/content/circulars/FAOP37195.pdf
Hi Karthik,
First of all, thank you so much for clear and lucid explanation.
I have a query regarding the P/L for futures.
Let’s say i bought 1 lot(100 shares) of share XYZ at 25 at a margin of 20%.So, Rs.-500 will be blocked from my account as margin.
What happens, if on the expiry date the loss incurred is more than the cash that i have in my account.
E.g.- Expiry date future price is 15 , then loss incurred=10*100=1000, and if after margin deduction of 500, I have only 100 rs left in my account, then how will the differential i.e. (100-500(margin)-100) rs.400 be accounted for as i dont have the money to pay for the same?
There are systems in place which continuously monitors the margin required and the current P&L, in case of such situations, and in the absence of additional funds in the account, the position will be cut by the broker
If I let a future position to auto square off on expiry, is STT and other taxes are higher than when it is sold before the expiry?
No, they will be normal as usual.
Hi Karthik you are the best writer and your way of explanation is amazingly unique. Thank you for this wonderful work. I have a question. How do you make your directional view on futures and options trading? Is it through Technical Analysis of spot charts or what? Please explain.
Arun, thanks for the kind comments. Yes, you need to employ TA/FA/QA to develop a point of view on the markets. I’d suggest you take a look at this chapter – https://zerodha.com/varsity/chapter/getting-started/
Hello Karthik,as in the above example you pointed out that ‘someone’ bought the TCS futures from me at Rs. 2460 on 16th December and that person continued holding it till the expiry date when the future’s price was Rs. 2519.25. So my question is that how is that ‘someone’ else going to be profited , I mean from where will that profit money come from after the expiry and who will be eventually at a loss?
For any futures trade, there is one guy who makes money and the other guy loses money. The money is transferred (via the exchange settlement mechanism) from the winner to the loser.
Hi Karthik,
I am new to F&O and learning ! Thanks for this excellent knowledge library !
What is the key difference between Futures and Options? What flexibility they have versus each other? thanks, Vikkas Malhotra
Vikkas, I guess its really hard to explain the difference between these two (at least in the comments section). I’d suggest you read the modules dedicated to these topics, will give you a good sense.
Sir,
1. in future trading how is the loss or gain calculated. if it is every day then is the looser to enhance his margin on daily basis.
2. pl explain how to square off the buy or sell positions online. where to click on the trading window.
1) Yes, the profits or losses are settled every day and any change in margins are updated blocked dynamically
2) If you are using Kite3, I’d suggest you goto the positions tab and click on exit option. This will square off the position for you.
Do we have a video of future trading order placement in zerodha. pl give the link if any. The windows shown in the tutorials are not available in kite.
Mohan, all the videos we have are here – https://www.youtube.com/user/zerodhaonline
As per your explanation in Future trade section the snapshot of TCS future calculated as 125*Rs 2374.90 = Rs 296862.9 but you have highlighted in black box in which the price of TCS future is Rs 2359.95 for 125 lot on 24 Dec,2014 which should be 2359.95*125 = Rs 2,94,993.9 because I am buying for future price .
If I am wrong please suggest me with example .I didn’t understand the calculation for future price .
Yes, to transact in futures you need to consider the Futures price and not spot.
Then why the snapshot of TCS future calculated as 125*Rs 2374.90 = Rs 2,96,862.9 instead of calculation as 2359.95*125 = Rs 2,94,993.9 in which you have highlighted in black.
1) if I am not wrong ,My concern is if future price as per TCS snapshot is 2359.95 *125 =Rs 2,94,993.9 which expires on 24th Dec,2014 and which is purchased by an individual ,but on 23rd Dec,2014 price becomes 2362,that is Rs 2.05* 125= Rs 256.25 profit can be booked.
2) Is only big cats trade on futures ,lot is around 200 to 3000 which multiply’s to share price becomes in Lakhs ,what about individual investor is not affordable to any future contracts of companies.provide some example with less lots with less price .
3) Where do I get or any websites which can provide to read DHRP of any company last 1 yr or 3 yr .
The futures price is 2374.9 and not 2359.95.
1) Yes, the profit can be booked. Not necessary to wait till expiry, but you can book it anytime you want.
2) Although the contract value looks large, only a small portion of the contract value is required to take a position. This is called the margin
3) I guess you are talking about the Annual Report – they are available on the companies website.
As per TCS snapshot future price is 2374 which is -3.77%,what is the underlying value Rs 2359.95 and lots 125 how to read and benefit by the individual .
I am talking about Margin as per current scenario for future trade no company having price less than of Rs 300 to 400 or more with 500 lots which comes 2 lakhs if Rs 400 to 500 lots which is not affordable to Lower Salaried Class..Can you tell me few of the company in which share price is within the price range Rs 50 to 60 and lots 100.
not Annual Report, I am talking abt DHRP which company has at the time of IPO .last 2 to 3yrs after the IPO subscription.
Lot size is the minimum number of shares that define a single futures contract. These concepts are explained in the chapter.
The minimum contract value is as per the exchange directives. Most contracts average around 5L.
Can I sell futures next day? if I can then, are there any risks involved like in equity of auction,etc?
Satish, there is no risk of the auction in the Futures market.
Sir,
why are you not answering as per my request question
1)As per TCS snapshot future price is 2374 which is -3.77%,what is the underlying value Rs 2359.95 and lots 125 how to read and benefit by the individual .
2) is there any company with less margin can I trade Rs 10k to 15k ,pls give few company names.
3)not Annual Report, I am talking abt DHRP which company circulates or has it during IPO process,after 1 to 2 yr of IPO still DHRP is available or during the IPO only available ,where it is available ,pls let me know.SEBI tells read the offer document carefully.
Sir,
why are you not answering as per my request question,
1)As per TCS snapshot future price is 2374 which is -3.77%,what is the use of underlying value Rs 2359.95 and lots 125 how to read and benefit by the investor.
2) is there any company with less margin can I trade Rs 10k to 15k ,pls give few company names.
3)not Annual Report, I am talking abt DRHP which company circulates or has it during IPO process,after 1 to 2 yr of IPO still DRHP is available or during the IPO only available ,where it is available ,pls let me know.SEBI tells read the offer document carefully.
Jaishankar, you need to read the whole module to understand the relation between, spot and future.
1) Futures price is always at a slightly higher price to spot (under most circumstances). When you buy futures, you multiply the lot size with futures price i.e 125*2374 and pay only a small portion of this as margins
2) You should try commodities or currencies. Margins are less than 15K in most of the contract
3) You can find all the DRHPs filed with SEBI here – https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=3&ssid=15&smid=10
Sir,
Thanks, for your valuable information ,your Zerodha site is superb in every aspects related to Stock Market,no other entity or company provides so deep information to individual or investor who are keen to get knowledge .Hats off your Team & keep it up.
The replies to the query are excellent. But being a beginner i have lots of doubts. please bear with me.
In future trading when should i put the stop loss. Is it before i place the order. for eg. when i bought a contract for Rs. 500 how much stop loss should i put. Can we change the stop loss latter. please give a detailed reply.
Is zerodha conducting classes for traders ? please reply.
You can place the SL after you buy the futures contract. You can modify the SL order as many times as possible. No physical classes as of now, all our lessons are online.
Modifications charges?
No charge for modification.
So on the date of expiry of contract do we have to take delivery of such shares or it is settled in cash
Cash settle as of now, Pranay.
Thanks for your very educative answers. Can you please tell me under what conditions the strike price of futures is above the spot (cash)price and under what circumstances future price is lower(discounted) than spot price.
Rocky, this is purely based on demand and supply situation. Sometimes things like corporate action would also matter.
Can I get the contract notes for carry forward positions???
No, a contract note is like an invoice generated for the transaction you carry out in the market. So whenever you take up any transaction, a contract note is generated.
I understood everything, I guess…. But one thing I’m not getting……
How to activate FnO feature to my account?
Nitesh, please contact the support for this and they will help you enable the F&O segment.
Hi Sir,
1. When a big shot buy a huge amount of quantity (say 100 to 200 lot) in market price but in spot market of that stock no such transaction take place then in this situation wont there be a deviation between spot market and future market price.(which suppose to track the spot market price).
2.If a person(big shot) but say 10 to 20 lot in future market first and then if he himself buy a huge amount of stock in spot market (eg .a bulk deal) then obviously the future price which track the spot market would increase and wont he benefit from that ? In this case the retail investors would be cheated right?
1) Yes, this will cause an impact, especially if its stock futures where liquidity is lower.
2) Bulk and block deals are outside the markets, so won’t really impact the price.
HI sir,
I mean to be not really a block or bulk deal but any transaction of huge quantity.
If a person(big shot) but say 10 to 20 lot in future market first and then if he himself buy a huge amount of stock in spot market , then obviously the future price which track the spot market would increase and wont he benefit from that ? In this case the retail investors would be cheated right?
But this could very well be a strategy. I see nothing wrong with as long as he is doing with his own money. If its client’s money, then he is doing something called as ‘Frontrunning’, which is not allowed.
1) Yes, this will cause an impact, especially if its stock futures where liquidity is lower.
In this case will the stock (spot) price will tend to increase or will the future price will revert back to the original level from where it rose or will the future price will tend to increase leaving stock price behind it?
Well, this really depends on subsequent demand and supply.
I want to take a Long position of Maruti Future June2018 Expiry on 23.05.2018. Is there any formality on May Expiry date( 31.05.2018) to carry on with this position till June. Do I need to do anything on this day( 31.05.2018) ?
I am sure I can hold the position without having to pay any extra DP Charges.
Regards,
Shyamal B. Singha
You can directly buy the June expiry. No need to buy the May series. Btw, there are no DP charges for buying futures.
Thank you Karthik. You are a great help/Institution for small retail traders like us. I have been following Anton Creil’s videos for a long time and its scary to know how the Industry operates. How the big fish eats the small fish in this industry !!!!!
But when we have guidance like you we do get a lot of encouragement & motivation to be in this industry and make money.
Thanks once again.
Regards.
Shyamal.
Shyamal, what I have realized over the years is that the fear and expectations are both set right when you go out and learn, so never stop learning. It will help you stay in the game longer and better 🙂
Karthik Thanks for all your valuable tips and Zerodha versity I have started making small profits.
Please tell me the advantages of rolling over a future contract to next month.
Happy to note that, Mohan. Hope you continue to see the profits roll in.
You roll over a contract only if you are sure about your directional view on the market.
Hello Karthik,
I want to setup algo trading on nifty future.
I have zerodha demat account. What else software required to place buy/sell call automatically using computer?
From where i get live nifty future data on my pc?
I want only nifty future data nothing else
Regards
You may want to backtest the algo, please check this streak.tech
Hi Karthik, Thank you
Just checked Zerodha Streak, good platform for back testing and generating alert.
But what i want is automated order placement by machine when condition triggered.
Streak gives just alert, and it may be missed.
can you suggest me solution
Regards
Glad you liked the platform. There are exchange regulations around complete automation, hence this may not be possible just yet.
Hello,
1) Why are all the futures contracts in my account showing up the date 18th, ex: Maruti Suzuki 18th May FUT, if the contracts are supposed to expire on the last Thursday, then it should be Maruti Suzuki 31 May FUT..right? Please throw some light on this!
2) Can I invest in futures contracts with more than 3 months validity?
Thank you.
1. ’18’ mentioned in your contract notes, tradebook, etc means the year of the contract and not the expiry day. Only Bank Nifty contracts will show the weekly expiry date(like Banknifty 07JUN18 27000 CE which means that the contract is expiring on 7th June)
I have an active trade in jindalstel Jun fut. While placing the stop loss order at Rs 222.5 today, every time the order was getting rejected. So i called the zerodha support and they said that you can at minimum place the order at Rs 222.7 I could not understand this.
Are you sure you placed the trigger price right? Assuming you are long, the trigger price should be at least 222.5 or higher.
Yes yes.. that was not the issue. When i placed the order the price was at Rs 243. and i placed it for SL-M at 222.5
There was nothing wrong with the order placement, but she said that the exchange has set the limit.. as 222.7 so you can not place it below 222.7 when i asked how can i know this, she said that it can be found in Pi.
Ok, in that case, this could because of the execution limits as prescribed by the exchanges.
I am new in trading, I have balance of Rs. 6000 in equity and Rs. 2000 in commodity, I was trying to buy NIFTY JUL 10800 PE 1 Lot =75 quantity at the price of Rs. 140 each, but transaction get rejected. Please help me, how much more fund i needed and how i calculate for such transaction, I will be thankful if somebody help me…
You don’t get any leverage if you are buying an option contract as there is a risk that you lose all of the premium you pay. You’d need to provide 75*140=₹10500 to take the position.
If you are new to options trading, I’d recommend you read Module 5 first:)
Thank you very much
Sneha, the premium for PE is 140*75 = 10,500/- but you have 6000, hence the rejection. Also, make sure your account has FnO enabled.
Thanks
continuing previous post ….. It was MIS transaction, I tried calculator but could not do properly, pl. help
In that case, I suspect you don’t have FnO segment activated.
Thanks, Can I check FnO segment activation in settings or I need to contact support… thanks again for your advice
You can look for it under profile in back office. However, you can always call the support for this. Thanks.
Hi,
I like to know , what will happen to Futures buy, if not Sqaured off( sold) before expiry.
The contract will be exchanged settled. However, please do check this for stock futures – https://tradingqna.com/t/how-does-the-new-physical-settlement-of-stock-derivatives-work/37830/3
In section 3.2, it’s written: “I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from me”. Note the -> “From me”. But then in the next paragraph in 3.3 in Scenario 1, you wrote: “I am entitled to buy the”. They both are different things. If I’m purchasing a future contract, I’m “entitled to sell” or “entitled to buy” at that price? Please clarify.
When you buy futures – the counterparty is obligated to sell. Likewise, When you short futures contract – the counterparty is entitled to buy.
From section 3.2, “What does it mean by “I now own 1 lot of TCS Futures Contract”? Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from me (counterparty) at Rs.2374.9/- per share.”
I think, the above line should be changed to, “………..it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an agreement with a certain counterparty, agreeing to buy 125 TCS shares from HIM………”.
“From me” is wrong.
Is my understanding correct?
Yes, guess its a typo. Will fix it. Thanks.
Okay and thanks a ton for the wonderful articles. Zerodha varsity is the best.
I have checked out knowledge articles on ICICI, Kotak & other sites, but nothing can ever come close to Zerodha Varsity.
Thanks, Kiran 🙂
We take serious efforts towards educating not just our clients but anyone who is interested in learning about markets 🙂
Hi karthik,
The info is super. It’s very amazing to see how easily you explain such a complex topic. It’s very useful.
My question:
(1) Suppose you buy a future & hold it. After expiry of future, will the demat account be credited with shares ?
(2) While buying future, only amount equal to the margin will be freezed. Suppose we buy a future & hold it. On the expiry date do we need to pay the rest of the amount ?
1) I’m not sure if you are asking this question keeping the new physical settlement in perspective. If yes, then the yes, the shares will hit your DEMAT. Read more on physical settlement here – https://tradingqna.com/t/how-does-the-new-physical-settlement-of-stock-derivatives-work/37830. However, if you have asked this without being aware of physical settlement, then the DEMAT account has nothing do to with derivative trading
2) Yes, again this is because of physical settlement.
Whats that “Get underlying quote”tells in SBI futures snapshot ?
It is the underlying price of SBI in the equity market.
Hi Karthick, I’ m reading all these comment , query but Sir their are alot alot of questions in every Chapter. Its time consuming to read 300-500 comment every chapter.
REQUEST:- PLS SIR, can you include question you find important in chapter itself or else mark the question you think reader should have knowledge about that. Please Sir .
Thank you
I understand, Chanu. I will check with my tech team if this is possible. Thanks.
Can I extend my future contract for another three months after expiry. How many times it can be extended.
You can keep rolling over your contracts for however long you want. No restriction on it.
In Section 3.3, Scenario 1, you state that “Assume on 24th Dec 2014, the stock price of TCS has gone up from Rs.2374.9/- to Rs.2450/- per share, by virtue of the increase in spot price, the futures price would also increase.”
Just want to reiterate that this is a wrong statement. Rs. 2374.9/- was the future price of the TCS stock and not the spot price. So you should write that the stock price has gone up from Rs. 2362.35 (that is the spot price of the underlying on the day contract was entered into).
Hmm, let me re-check what I’ve said 🙂
The point is that the futures price follows the spot.
Hi, (1) How many times i can trade future in MIS intra day method per day, and (2) What is the minimum investment for futures?
1) As many times as you want (2) Depends on the contract’s margin requirement.
Hi, Mr.Karthik ,Thank you for your crisp answer, i appreciate it.
(1) Can i also trade a future many times with CO [cover order] for intraday trading.
(2) Approximately ,How much margin will be required for a Rs.500000/- value lot with CO[cover order].
1) Yes you can
2) You can check the margin requirements here – https://zerodha.com/margin-calculator/BracketCover/
Hi Karthik,
I have a question on your example – If a Person A enters into a futures contract to buy a lot from Person B for Rs 2374.9 and anticipates prices to rise. However, the next day Person A squares off at 2460 with Person C.
Assuming Person C holds on to till expiry, Person B will still sell at Rs 2374.9 per share. The question is who bears the differential amount of 2460-2374.9 = Rs 85.1?
The deal is now between C and B. They will settle based on the expiry prices i.e if they hold the positions till then.
Karthik,
Who will pay the difference of Rs 85.1 per lot since B had a contract for Rs 2374.9 and not Rs 2460?
Regards,
Mahesh
At the end, you just need to take the difference between the buy price and sell price and estimate the P&L. Always consider the difference in prices.
Hi, if i use Rs 300.50 as trigger price in cover order,will the order executed exactly at Rs 300.50 or below the Rs 300.50.
The trigger price is for the second leg of the order(The stop-loss).
For the entry order, you can use Market or Limit order.
After the completion of the entry order, if the LTP falls below 300.5, the stop-loss is triggered and a market order is executed. The price for execution will be the best available bid in the market(either above or below 300.5)
so , if i have in long position the stop-loss square off will be executed below 300.50 ,am i right.
Hi I need to know about the extended trading hours from sebi in derivatives segment my question is derivatives in the sense future and options move from the change in underlying if there is no underlying cash market after 3.30 then how those future and options move there is no logic
There is no official confirmation on this, Ranjith.
I was expecting you would say this ? but if they do does it make sense
It really depends on the scheme of arrangement, Ranjith 🙂
In scenarios of 3.2 you have written stock price of TCS goes up from 2374.9 to 2450. But 2374.9 was price of TCS Futures not spot price of TCS. Please clarify.
Para 3.3. Not 3.2.
Yes, arent we referring to Futures here?
For F&O stocks like JPASSOCIATES and SUZLON ENERGY, could you please explain the scenario if they priced below Re.1( let us say 0.9).
Example:
Jpassociat Sept Fut = 6.6, Jpassociat Oct Fut =6.7, Jpassociat Nov Fut =6.8 (stock quoating @ Rs. 6.6 on Sept ’15) and sudden movement came in a couple of sessions eroding the stock to the level of Rs. 0.9 by Sept ’25.
Would these circumstances led to the removal of specified stocks from F&O by cancelling of the continuing contracts for the current month or the months that the contracts are allowed before reaching the prices below Re.1? Will there be any such case if NSE blames these companies upon liquidity concerns.
Thanks in advance.
Interesting scenario, Mohan 🙂
I guess NSE will continue to allow these contracts, they will remove it from the exchange, if required by issuing a circular.
One small doubt.
As I have never traded in future, so the doubt could look silly.
At the expiry of the future contract, how the payoff’s happen? Whether at the expiry, the future price at which I had purchased is compared with stock price in cash market? And the difference is paid/received?
Yes, this is how it works. However, recently the exchanges have introduced physical settlement for few contracts, check this – https://support.zerodha.com/category/trading-and-markets/margin-leverage-and-product-and-order-types/articles/policy-on-physical-settlement
Hi Karthik,
In case of BOSCHLTD18NOVFUT, LTP is 19,878.95 & spot price is 19,710. So if I sell 1 lot of BOSCHLTD18NOVFUT at Rs. 19,878.95 and buy 30 shares (= 1 lot) of BOSCHLTD at Rs. 19,710, at the time of expiry, profit of Rs. 5068 is guaranteed, no matter in which direction the shares move??
Yup, that’s right Himanshu.
Thanks Karthik. But will my buying of 30 shares of BOSCHLTD @30*19,710=Rs. 5,91,300 will offset my margin requirement of BOSCHLTD18NOVFUT @Rs. 96,539?
No, there is no margin benefit for now, but we will do this sometime soon.
Sir suppose I have bought one long future (MIS) and during day I sold 2 lots (MIS) of same stock/index in zerodha kite. Whether there will be 1 long n 2 short in my account or 1 long will get set off with 2 shorts and at end 1 short remains?
Pratik, your position long will offset 1 short, hence you will have 1 short open.
If I sell 1 lot for current month futures and at the same time I buy 1 lot of Jan ending future contract… because I want to take advantage of low margin required as I am low on budget…I am expecting stock to be bullish..from the purchase day
1)will I need another margin if I want to transfer my current month contract on next day to minimize the loss as I am expecting stock to rise from purchase day
2)can the same thing be done in a different way if budget is low nd u want to take margin advantage
3)will it be still a profitable tradeeven after deducting current months future contract losses ?
1) You will get a margin benefit, however, you need enough to carry forward the position
2) Yes, if you are bullish, why not buy a call option expiring in Jan instead? You just have to pay the premium
3) This really depends on the spread and at which point you will close the position.
[…] The Futures Trade […]
Sir,
I have a doubt, please clarify…..
The last para of Sl. No. 3.2 have mentioned the following:
Quote:
“”Here is a critical question – What does it mean by “I now own 1 lot of TCS Futures Contract”? Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from me (counterparty) at Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th Dec 2014.””
Unquote
I may be wrong but i think the meaning of owning 1 lot of TCS Future Contract, should be that i have digitally entered into an agreement with certain counterparty to buy 125 TCS shares from the counterparty at Rs. 2374.9/- per share on 24th Dec 2014.
Regards
Yup, that too makes sense, Ankit.
Your content is very well written.
Even complex topics are explained very systematically , are to the point and without going into unnecessary details.
I think it is an art.
Glad you liked the content, Nitin. Good luck and happy reading!
What if i don’t want to exit my position for this month can i hold nifty future for long time.
Yes, you can hold till expiry.
Thank you for your reply what if i want to hold after the expiry what are the other ways to do this ?
You will have to roll over the contract.
Thank you sir for helping us …. 🙂
Good luck!
Why do we have limited index for Future trading ?????
Why SEBI does not increase the time for trading (Intraday Trading) i heard they were about to do the end time near by 05:00 PM ???
There are few other indices, but they aren’t popular/liquid enough.
Hello sir good evening,
Somewhere i read at zerodha that we can convert our position (Equity) from MIS>CNC and CNC>MIS can we do this with Future segment suppose here I hold Nifty 31 Jan 2019 NFO can i convert MIS NFO to CNC NFO if i purchase (Buy) NIFTY 31 jan 2019 at 10840 and suppose i am in loss at 10790 can i convert this MIS position into CNC. I tried to explain in my Hinglish way i hope you understand 🙂 and sorry to bother you.
Yes, you can convert the futures position between NRML and MIS and CNC to MIS for Equity positions. There is a position conversion option in Kite. Check this – https://support.zerodha.com/category/trading-and-markets/margin-leverage-and-product-and-order-types/articles/how-to-convert-mis-to-cnc-nrml-and-vice-versa?ref_query=position%20conversion
Thank you sir, well explained basics of future contract.
Answer of last two questions is-
1.Overall profit is booked Rs 18043.75 and per share profit is Rs 144.35.
2.Overall profit is booked Rs 7406.25 and per share profit is Rs 59.25.
Sir please check it and make me correct if i am wrong.
1. if i am seller of the 1 lot of future contract, then Is it compulsary to own 125 shares of TCS or i can enter in future contract without owning the shares of TCS.
2. Same in case of purchase of 1 lot of future contract at the expiry date of future contract , i would be obligated to purchase of 125 TCS shares.
Hemant, this seems correct. You can double check with the answers provided in the comments above.
1) You don’t need to own these shares, you need to have the margin amount
2) No, you can square off the position before expiry.
However, if you intend to hold the position at expiry, then yes, you will need to own share (for short positions) or fund to buy shares if you are long. This is a part of they physical settlement of derivatives. You can read more about it here – https://support.zerodha.com/category/trading-and-markets/margin-leverage-and-product-and-order-types/articles/policy-on-physical-settlement
1.Future contract buy/sale mechanism is like equity share buy/sale on NSE/BSE or different from equity share buy/sale.
2.Underlying asset remain the same, Which is price of TCS shareor. Is there any effect of bonds and debenture of TCS or something else which could effect the future contract.
1) The process is the same, Hemant.
2) Yes, the futures price mimics the price of the spot.
I am not sure if it is asked before in this section. Suppose,
I want to invest in nifty for long term say 5 years. I cant buy nifty index as stock. So I buy nifty future and keep rolling it over until 5 years (rolling over to far month contract).
Of course, I can invest in ETF scheme of any MF. but in nifty future I get up to 10 time leverage. There are two points to consider in this; cost of carry and margin maintenance in starting years. But advantage is if nifty grows by atleast 10%CAGR, I will be making 500% of my investment in 5years. The same strategy can be used for any stock futures but it is bit risky. Please share your opinion on this.
For you to do this, you will need a lot of money to accommodate margin and mark to market P&L. I personally feel you are better off with buying Nifty ETF.
Agreed sir. I may need some margin initially to adjust MTM. But once nifty gains some 10% I can use that profit. I dont get advantage of leverage in ETF. How to encash the advantage of leverage
Santhosh, if you are fully aware of the risk and have the capital, then I do agree that futures rollover could be a better option.
Hi Karthik
I have basic question about futures
Suppose i am trading for dish tv futures today and at 10:00am i sold at price 25 for one lot of 8000. so total amount invested here is 8000*25= 200000. this is for delivery and not intraday
Now suppose it closed at 24 same day, amount of 8,000 will be credited to my account is it?
Next day if it went to 23 and if i bought at 23 and closed the position, again will i be getting profit of 16000?
so profit will be 16+8=24,000 is it?
Yes, you will make 2*8000 as profits. Both profits and loss are settled the same day.
Hi Karthik,
My question was not only for closing pricing amount which is 25-23=2, 2*8000. Will i be getting 2*8000 + 8000(previous day when it went 24 i.e 1*8000) = 24000 which is the total or will i be getting only 2*8000=16000?
Kiran, I’m a little confused about the question. However, the P&L calculation is quite straight forward actually, its the difference between the price at which you buy and sell the option premium multiplied by the lot size. Even if this is spread across multiple days.
Sorry karthik. My mistake. I didnt read about Shorting in futures and asked you the question. I got the answer now.
Thats alright, Kiran. Keep going 🙂
As we know NSE is introduced delivery mechanism for 46 F&O contracts. IF any one trades and let it expires their stock Future contracts on these 46 F&O contracts should take delivery. My Question is there 200 stock future contracts available in NSE , out of 46 what about the rest of the stock future contracts, suppose if I traded on TCS stock future contracts and let it expires for the month. Do I have option to take delivery of contract size of 250. I would like to know what about the rest of the stocks other than 46 F&O delivery. is there any chance that we can take delivery of the rest.
Thank You.
Venkat, SEBI came out with this circular on 31st December 2018 which directs the stock exchanges to physically settle all stock derivatives by October 2019 expiry. The exchanges will move all the stock derivatives to physical settlement in a phased manner. You can refer to this Google sheet to find all the stocks currently under physical settlement and the schedule of movement of the remaining stocks to physical settlement. Currently, you will not have an option to take delivery of any stock which is not under physical settlement until it is moved.
Dear Sir,
I understand that, in Futures, we can roll-over the positions after expiry of a particular month, to the next month. However I am not clear, at what price this roll-over is permitted after expiry for roll-over. (Whether at market price or at initial contract price)
For example, suppose I had shorted(Sold) 1000 futures @ Rs. 1,000 in Feb 2019 and suppose if the price is Rs. 1,040 on the date of expiry; there by un-squared loss is Rs. 40,000 as on 28th Feb 19.
If I wanted to roll-over my position from Feb to March 2019, can I roll-over this position @ Rs. 1,000 at initial price or do I have to square off at Rs. 1,040 and then take up March 19 futures at market rate?
If I have to square-off at Rs. 1,040, then what is the purpose or benefit of this roll-over facility? Please clarify whether my understanding is correct or correct me if I am wrong.
Thank you.
Vishnu
Vishnu, you will have to square off the first position and then reinitiate the same position in the next month’s contract. The rate at which these transactions will occur depends on the market. The 40K loss in your example will anyway realise because of the M2M.
Hello sir,
I have a question just like buying equity shares for long time (CNC) can we do the selling for long time In Future & Equity market.
That’s not possible, yet.
what is the maximum number of contracts that can bought/short sold using BO/CO in stock futures and BNF/NF futures at a time for intraday trading?
This depends on the position wide limit for the contract.
Dear Karthik,
Very new to trading. Never did future or option. Now at learning phase. After reading your articles i just assuming –if any one buying far month share by seeing the fundamental and technical and at lower phase, he must gain as time will be there for share to increase.
Please share your opinion.
Shakti, time alone cannot be a factor for capital appreciation. The stock can gradually go down over a period, right 🙂
Dear Karthik,
You are right still if you able to buy at very low cost–say near to 52 week low cost. There will be a strong chance to increase the stock what i assume.
Yes, as long the fundamentals agree 🙂
Thanks zerodha.com
You explained very well. I searched many websites for stock market lessons. I found, you are the best.
Happy to note that, Ankesh. Keep learning 🙂
Hi Karthik,
I am facing a problem to purchase NIFTY .
suggest me how can I purchase,
What sort or problem, Rakesh?
hi karthik
i have basic querry regarding F&O
1- Suppose if i buy one lot of SBIN @ price of Rs.300 in normal trade after some time on the same day the SBIN price goes up to Rs.306
now i made a Rs.6 profit .
can i square off my normal position on the same day (it is not a intraday trade)
Yes, you can Anil. Not a problem.
first of all Thsnk you karthik…
but i have one query please clear that to me…….
in previous query i have asked about NRML F&O equity stocks can i square off my position same day (you replied yes i can)
if i can square my NRML F&O stocks same day !!!! is there any penalty charged by exchange or not ????????
No Anil, no penalty will be levied on you for squaring off the position the same day.
thank you karthik
dear sir i was going through with KITE Zerodha A/C.
sir stock price or index price like banknifty price showing me difference while checking on nse web site or other brokers plate form i am confused why it is showing price difference at the same time.
Anil, all brokers receive the feeds from the exchange. However, please do check this – https://tradingqna.com/t/why-does-two-charts-of-the-same-timeframe-look-different-on-the-same-platform/4715
If I buy and sell same future stock in the same day whether actual buy and sell price will be applied in contract note or daily settlement price of that stock will be applied? In second scenario I will be ending without profit or loss. This is what I see in my contract note. Is my understanding correct?
Yes, the actual price of the transaction will be noted in the contract note.
Does any charges would cut on daily basis if one buy / sell future ?
All charges applicable are mentioned here – https://zerodha.com/charges
dear sir i have an zerodha DEMAT & Trading A/c & i want to open another demat and trading account in “Zerodha ” because of simple work in one A/c i want to use as trading and other is use for long term investment so it is possible or not please guide to me regarding this matter.
is it possible to open multiple trading account or not ????
Anil, you can only open 1 account with a broker for an associated PAN. You cannot open multiple accounts.
Hi,
The series is fantastic and clearly explains the fundamentals.
I have question. What if The counter party search didn’t produce any interested party having opposite view while buying or selling futures or while squaring off my position? Can this happen? What happens to my trade then?
regards,
Satish
Satish, that why liquidity is important, the higher the liquidity, the easier it is to find parties with opposing views (and therefore a vibrant market).
Yes. liquidity is important but I am curious to know what happens if I entered a buy or sell trade and there are no sellers or buyers for my trade. Does my trade remain there as un-executed?
Then upon the expiry, the exchange will settle it for you.
i nee d little assistance sir,i bought zinc mini 1 lot 30 april 2019 expiry and i could not square of it.i need to know at which price my zinc mini april 30 expiry was setteled.?
plz assist me.
You will have to check the MCX circular, look for the DDR rate – https://www.mcxindia.com/circulars/all-circulars
Hi Karthik,
I am not able to buy or sell in a range, till few days back since 2014, i was able to do this through SL order.
Now, its not allowing me , both in PI as well Kite.
Please let me know, how to place a buy or sell order in a range.
More explanatory, for instance crude is trading at 4430 , i want to buy it,between the range 4432-4435.
Regards,
MSP
You can use a simple limit buy/sell order for this right?
Hi Karthik,
If i use simple buy/sell limit order than, its not allowing me for the range.
Regards,
MSP
Ah, you should probably check this – https://support.zerodha.com/category/trading-and-markets/margin-leverage-and-product-and-order-types/articles/what-is-f-o-execution-range-and-why-do-some-open-orders-outside-f-o-execution-range-get-cancelled
Hi Karthik,
I followed it, and i am aware of this, i just wanted to know , why i am not allowed to give range in limit order.
Apart from this , has there has been any modification in placing order program, which is now not allowing to place range order for buy or sell.
Regards,
Madhusudan
I think its best if you can call our support desk for this, they will help you understand this better.
Hi Karthik,
I did the same, however, they are not able to resolve.
If there is a range allowed for SL, why the range is not allowed for profit booking.
I had checked with one broker in Mumbai, they said , its common and happening with their software.
Regards,
MSP
The reason you get to place a range in an SL order is to allow for your stop-loss to go through in a free falling market. In most cases, your order will go through on or near the trigger price itself. The behavior is the same with a limit order for profit booking. Your order will go through at the limit price or at the highest available bid(if the price is continuously rising).
Thats ok, my point is,I have entered at 1070, my target is 1080, however, there is a possibility price wouldn’t reach there, to protect my profit, i want to put a range 1075-1080.
Please let me know, how can i do that.
Hi Karthik,
If i buy a future contract 30/5/2019 (@100rs per share) & at the end of the day the Share Prices are Fallen by 2rs so now the Share price is 98. So will some amount will get debited from the margin that i have kept for the share.
Yes, all P&L is mark to market…and therefore your account is either credited or debited on a daily basis.
I just googled the stock prices of TCS on 23 Dec,2014 ..and it was around 1258 ..and you are saying it was 2519?
It must have been adjusted for stock splits or bonus issues.
Hii Sir !
As explained in forward contract, when we entered in any forward contract after expiry period we have to oblige as per the contract like in gold example at the end of the contract ABC jeweller has to purchase 15 kg gold and at the same time XYZ dealer has to sell 15 kg gold as per the contract price.
1) In case of share future can i enter into future contract as a seller without own any shares, because he has to sell as per contract at the end of the contract. What happen if he don’t sale share?
2) Does future contract buyer has to purchase share at expiry of the future contract becaise, as per contract he is obligated to buy the share and what happen if buyer don’t buy share?
3) Why anyone purchase contract at the end of the expiry ?
1) Yes, this is possible with futures. You can enter a position without holding the stock in your account
2) Yes. However, as a futures trader, you can close the position anytime before the expiry of the contract. No need to wait till expiry
3) Depends on the trading strategy they are following
Sir, suppose i was unable to find buyer end of the expiry or hold the future contract at the end of expiry.
1.Does it mean now i have to buy share or it can be settled by cash.
2.what happen if i don’t buy share?
As long as its a derivative contract, you need not have to worry about the settlement.
1) Depends on the stock, if it is physically settled then you will have to bring stock or cash based on your position. Check this – https://zerodha.com/z-connect/tradezerodha/policy-on-settlement-of-compulsory-delivery-derivative-contracts . Cash settled, otherwise
2) Assuming its cash settled, it will be settled by the exchange.
Hi,
I have following doubt about roll over of future contract. so this is the month of July
1. I buy a nifty July lot. on the day or before July expiry, can i square it off by selling nifty august lot?
2.I took a position in nifty Aug/Sep lot in July. Am i bound to settle this transaction on last Thursday of July or that will be happened on the last Thursday of respective month?
1) If you intend to square off July position, then you will have to square off by selling the July contract only. If you sell the August contract, you will essentially have 2 different positions. To roll over a long July position, you will have to square-off by selling July contract and going fresh long in August contract
2) You can square these positions anytime you wish, no need to wait to expiry.
Hi Karthik,
Thanks for prompt response.
Regarding my 2nd query, I understand that i don’t have to wait till expiry. My actual concern is will july expiry date have any impact oin settlement of aug/sep lot if i purchase aug/sep lot in july.
No, it won’t have any impact.
hello sir
lets say if i bought x company future lot (each stock rs100, lot of 50 stocks) , 10% leverage ie.. 500. so, rs 500 will be locked from my account to buy that lot and next day if stock value comes down to rs 10. then how much amount will be deducted?? is that (50*90=4500)?? and if my account is not in position of that amount. what will happen?
You will lose 50*90 = 4500. The losses will be adjusted from the margin amount blocked.
Sir,
In which module/chapter Future Strategies available.
Here you go – https://zerodha.com/varsity/module/trading-systems/
thank yonu sir
Sir
What will happen if i don’t close the MCX futures contract on expiry date. Is there any penalty charged.
Thanks
If you are trading with Zerodha, the MCX future positions gets closed before the expiry day.
Thank for the reply. Is it auto squared off or I have to close it manual.
Thanks
If you don’t close your MIS, it will be auto squared off.
Sir
If no buyer is there in the market to buy my futures MCX contract on the expiry day. What will happen?
Your position will be squared off by the exchange.
Hello sir
i have very small doubt
1.TCS share value is 2374.9, ok lot size is 125 shares, total value is Rs.296862.5 (no need to pay this amount ok)
2. how much margin amount i have to pay to buy futures.
3.what is premium amount
Mirza, check this for margin amount – https://zerodha.com/margin-calculator/Futures/.
Premium (when futures is trading higher to the spot) = Futures Price – Stock price
Discount (when the spot is trading higher to the futures) = Spot Price – Futures price
Hi Karthik,
I have a question on the usage of Futures from positional trading perspective. For the positional trading, Futures are the better options than Options right? Since options got the time value, it might decay fast. But if we can afford to take delivery, dont you think Futures are a better options than options?(Provided one have a good margin) Thanks a lot.
It certainly is, Pradeep. The only issue is that to maintain a futures position, you’d need to ensure there are sufficient margins to support your M2M obligations.
@Karthik – I have a question on future contract when carried to next day. If my trade was in profit and still holding to next day, so will that profit be credited to my account and still being on position (just like I have to pay extra in case of loss)? Example below
Day 1 – Bought Future trade @ 100 and it went upto 120. Profit – 20 per lot. Now I expect to go up further so I am carrying the position to next day.
Question – Profit of Rs. 20 per lot will be credited to my account same day OR it will be a virtual profit? If it is virtual profit then why loss is not virtual by EOD?
Rahul, the P&L is marked to market (M2M), and gets credited or debited on a daily basis. So you will get the 20 credit by the end of the day.
Sir
If there is no seller for equity futures option contract for a particular strike price, how can i purchase a call option.
Kindly reply
Thanks
Rangarajan
I’m sorry, I can’t seem to understand this query, Rangarajan. Can you please elaborate?
Hi siri have doubt in futures or option carryforward trading,
Example:
I buyed a nifty ce of 11400 at 150 price in carryforward, so on next day if i sell my position at 160 and closed at 80. so i will get how much amount. will i get 160 x 75 =12000 or 160×75 + 6000 = 18000. Because after selling price has been gone down.
So can you please explain it.
You will get the difference between the premium multiplied by the lot size.
hello
how we can use option chain or PCR or voltality ,to pick a direction in future trading ,have any co relation with open interest of option and futures
Volatility can be used to set up stop losses. PCR, I’m not too sure, but its an interesting thought.
Typo – I guess the date (precisely year) is wrong
Location – 1st of the 2 questions you have asked in the end
Original – 1. What would be my Profit & Loss (P&L) on a per share and on an overall basis had I held
the TCS futures from 15th Dec 2014 (Rs.2374.9) to 23rd Dec 2015 (Rs.2519.25)
Correction – 15th Dec 2014 (Rs.2374.9) to 23rd Dec 2014
Ah, let me check this, Nilesh.
Hi sir , u written by clicking F1 u buy the future derivatives so at that time we have to pay just the margin or the whole amount that is lot* price at that time , and on the other side if we pay the whole amount , the party with we deal this , he/she also purchase it by paying the whole amount ? so how do we determine that who wants to sell and buy , like both of us has pay the whole amount and price goes up, then obviously both of us want to sell , SORRY SIR for writing such big comment , God bless you sir , I just hope u get my doubt
Sagar, in any futures trade, both the buyer and seller have to pay just the margin amount at the time of initiating the trade.
Sir if at buying the price is 100 and at the end of the day price become 120 , then at the end of the day my account is credited by 20rs , what if the very next day the price become 90 , so now my account will have 10rs( first 100 then 90 , already have 20rs so -10 from it ) or -30( yesterday it was 120 now 90)
Yes, your account will be initially credited with 20 and then debited with 30. This is called ‘Mark to market’.
Dear Sir,
good afternoon,
i have query regarding F&O
1) on 5th feb i sell 1lot of BANK NIFTY feb FUT @ 30980 and 10th feb its trading @ price of 31110 my total loss = 130*20=2600
2) on same day i buy a BANK NIFTY CE @ 31100 @ price value Rs.281 and sell on next day @ price 374 my total profit is 1860
3) o 7th feb i buy BANK NIFTY CE @ 31400 @ price value Rs.183 and sell it on 10th feb @ price value Rs.85 and my total loss is 183-85 =1978
total loss= 2600+1978=4578
total profit is =1860
before taking any trade i have balance in my account Rs. 95358 (when i see my DASHBOARD i got confused bcoz showing margin utilize 81.76k, opening balance 88118k, margine available 6350) actually i just want to know what will be actual loss if i exit my BANKNIFTY FUT @31110
Anil, the easiest way to check individual P&L of each position –
1) 31100 CE is profitable – 1860
2) 31400 CE is loss-making – 1978
3) Fut position is loss-making, you lose 2600
Sum of all these is your total P&L. Margin utilization is for taking the position. This is a different thing.
how much money will be blocked as long as we hold the futures contract. explain with example
The money blocked is to the extent of the margins required. You can check the individual margins here https://zerodha.com/margin-calculator/SPAN/ . Plenty of examples included in this module.
Hello sir,
I have few doubts/questions on future buy option
1.Say i am buying company ABC Feb20 expiry futures @Rs100 (lot size-1000)
2.I hold this long position till expiry ( at expiry the price is @Rs90)
3.I have enough fund in my account to take physical delivery
4.what will happen after future expiry
5.The contract will squired-off on expiry date ? ( in that case i will loose 10×1000 = 10,000 ?)
6.Stocks of ABC will be allocated at what price (90 or 100?)
7.any advantage of taking delivery, like reducing the loss etc.?
8.If shot delivery happens for allocation,how much cash will be refunded to my account?
Thanks in advance,
Mohan
Yes, long futures result in delivery of the shares. The buy price will be the settlement price on the expiry day. No advantage as such.
Thanks for your reply.
One more question.If i don’t have sufficient fund on my account for taking physical delivery. Will i incur some penalty for that?
-Mohan
Nope, you won’t.
1 Question Sir, regarding futures
Suppose we traded long in Futures (MIS), can I convert my position into CNC before the end of day ?
Is the procedure same as normal equity trading that requires you to deposit the remaining margin?
Thank you.
Yes you can. Long futures in MIS can be converted to NRML (not CNC), but ensure you have the margins required for an NRML position. CNC is for Equity delivery.
Sir,I have traded USDINR (currency) in Marfut2020 on the expiry date and didn’t square off my positions before 12:30pm and afterwards I was not able to square off my positions.
Will I get my Margin amount in respect to P/L.
Yes, the position will be settled and P&L will be credited/debited accordingly.
Both parties digitally sign to honor the contract (In Forwards it was forcing to honor till the expiry period)
(In futures) Do this mean they also honor to exit whenever they want to like you have mentioned above.
Yes, futures give you the flexibility to exit the position whenever you wish, unlike the forward market.
In derivatives trading, why BUY is referred to as LONG and SELL as SHORT ? Is there any logic behind that ? Also when one needs to close a position, why it is called as SQUARE OFF and not simply CLOSING the position ?
These are legacy terms, no idea why 🙂
Hi sir. Under revised SEVI guidelines regarding physical settlements. I have the following query.
Physical settlements occur if we donot square off positions on or before the expiry date. Otherwise it is cash settled. Is my understanding is right. Please advise.
Nope, if you let your equity F&O position go till expiry, then its physical settlement.
Hi, I am new to Options and had a query.
Say I buy 1 lot of “NIFTY Apr 16 9600 CE” at Rs. 2.3 on April 13. Total cost is 75 × 2.3 = Rs. 172.5 [MIS]. Now at end of day say the price goes down to 2.2 and I decide to hold onto it because I expect a rise in price. Will I have to convert my position? And if I have to why is the margin (balance in account) so high (over 40K) even though the trade is worth a mere Rs. 172.5?
Thanks!
When you buy options, you will have to pay full deposit. Once you do, you can roll this forward till expiry.
hi, you are doing an excellent job, kudos to you. i learnt here that prices of spot and futures contract converge at expiry , so suppose i am taking arbitrage trade when is the best time to close my position is it before expiry or i should let it expire on its own to earn maximum gain from arbitrage ??
If it is the current month futures, then its best to let it expire as you’ll get to capture the arbitrage spread completely. Otherwise, you can close it as and when appropriate.
How can I SELL Gold now and BUY on a later date to square off the positions.
Gold futures you can use.
Hi Karthik, I just completed technical analysis course few days back and had asked my query there. 🙂
Now,I have started with Futures course.
I have one basic question.I have tried to explain.
In spot market, we actually trade the shares which are initially sold by company through IPO.
What do we trade in Futures market ?
The 1 Lot of shares , where do they come from ?
Could you please explain or share some resource where I can get to know about it.
Thanks in advance.
Future is a contract wrapped around the underlying. Contracts get created at the start of the series and expires on the expiry day. The price is derived from the underlying market.
Does that mean, at the start of series a fixed number of contracts are created which are traded until the expiry date ?
Yes, you can think of it that way.
Thanks Karthik 🙂
If the buyer of the futures transfers the futures to other person before the expiry day ,he will be paying the difference amount of price of futures on agreement day and price of futures on transfer day to buyer(initial owner of the futures).??
Hi Karthik,
I have a query related to F&O.
Assume, A buys F or O contract from B and makes profit. A exits from contract by selling F or O to C.
1. From this point, all the transactions are carried out between B & C?
2. Assume, due to loss B wishes to exit. How can B exit? What happens to contract? does it cease to exit? or will have someone, say B & D?
1) Yes, thats right
2) B can exit to D, just like how A did with C.
Karthik, I’m unable to understand how B can exit to D? (A sold whatever he had bought and exited) but what does B do to exit? will B buy from E to square off? if so, who bears further loss in the contract? I don’t think it’ll be E as E could be someone who is selling after making profit like A. So does that mean C will now be mapped to F who was contract seller to E initially who is still active or someone similar in the chain?
I’m more fond to know how B exits and how cycle further continues (who will be that new seller in place bearing loss)?
It is basically one trader closes the trade and settles with another, who then takes on a position and continues.
Hi Karthik,
If I buy 1 lot of a futures contract of current month and choose to carry forward till expiry…..what if there is no buyer when I try to square off my position? What happens to the lot on expiry day?
You need not have to worry about that, if you let it expire, then the exchanges will ensure it settles your contract with the counterparty. Problem is when you want to sell before expiry and there are no counterparties, then you will get stuck.
Hi Karthik,
If I don’t square off my position in equity Futures before expiry then it will go for physical settlement.
1.But what happens in case of NIFTY Fut or BankNifty Fut?
2.Is this same for Options as well?
1) They are cash-settled
2) Yes
hello kartik
i have my doubt in this paragraph–page24 last para of 3.2
Here is a critical question – What does it mean by “I now own 1 lot of TCS Futures Contract”? Well,
it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an
agreement with a certain counterparty agreeing to buy 125 TCS shares from me (counterparty) at
Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th
Dec 2014.
here on expiry will you buy the lot or sell. because further in chapter in scenario 1and 2 you are buying shares at 2374.9.
. But in above shown paragraph you have written that your counterparty is agreeing to buy 125 tcs share from you(me) on 24 dec 14.
please clarify. thanks
I’m not sure if I understand your query completely, but you can either be a buyer or a seller of a contract.
Kartik sir i have given you the paragraph from this module 4 chapter 3 (the future trade) of future trading. Again i am pasting this paragraph from page no 24 for your reference.
Here is a critical question – What does it mean by “I now own 1 lot of TCS Futures Contract”? Well,
it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an
agreement with a certain counterparty agreeing to buy 125 TCS shares from me (counterparty) at
Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th
Dec 2014.
Scenario 1 – TCS stock price goes up by 24th Dec
This is a case where my directional view on TCS shares has come true, therefore I stand to benefit.
Assume on 24th Dec 2014, the stock price of TCS has gone up from Rs.2374.9/- to Rs.2450/- per
share, by virtue of the increase in spot price, the futures price would also increase. This means as
per the agreement, I am entitled to buy the TCS shares at Rs.2374.9/- per share which is a much
lower price compared to what is available in the market. My profit will be Rs.75.1/- per share
(Rs.2450 – Rs.2374.9). Since the deal is for 125 shares, my overall profit will be Rs.9387.5/-
(Rs.75.1/- * 125).
The seller obviously incurs a loss, as he is forced to sell TCS shares at Rs.2374.9 per share as opposed to selling it in the open market at a much higher price of Rs.2450/- per share. Clearly, the
buyer’s gain is the seller loss.
Scenario 2 – TCS stock price goes down by 24th Dec
This is a case where my directional view on TCS shares has gone wrong, therefore I would stand
to lose.
Assume on 24th Dec 2014, the stock price of TCS goes down from Rs.2374.9/- to Rs.2300/- per
share, by virtue of this decrease the futures price will also be around the same level. This means
as per the agreement, I am obligated to buy the TCS shares at Rs.2374.9/- per share which is a
much higher price compared to what is available in the market. My loss will be Rs.75./- per share
(Rs.2374.9 – Rs.2300). Since the deal is for 125 shares my overall loss will be Rs.9375/- (Rs.75/- *
125).
I would obviously incur a loss as I’m forced to buy the TCS shares at Rs.2374.9/- per share as opposed to buying it in the open market at a much lower price of Rs.2300/- per share. Clearly, the
sellers gain is the buyer’s loss.
Now my query is in this para you have written that you own 1 lot of TCS future contract it means on 24 Dec 14 your counterparty will buy 125 shares from you at 2374.9/ per share. But furthur in scenario 1 and 2 you have written that you will buy 125 shares from counterparty at 2374.9/ per share.
Please clarify.
Its like this – if you are a buyer now, then to close the position at a later point you need to sell. Likewise, if you are a seller now, then to close the position at a later point you will have to buy.
Hope that clarifies.
Hi,
I sold two lots of nifty fut jun today. Could somebody pleasse help me, will it be carried forward for next day or not.
Thanks,
Syam
I have a doubt, If you buy 1 lot(125 shares) of TCS future. Will that 125 shares be counted under volume in spot market ?
No, this is futures, so different segment.
Hello Karthik,
This part confused me bit.
“Here is a critical question – What does it mean by “I now own 1 lot of TCS Futures Contract”? Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from me (counterparty) at Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th Dec 2014.”
What I understood from the examples is buying a future contract means right to buy the underlying asset at that price ( price at the time of entering into contract ) expiry. As per my understanding the above paragraph states otherwise.
Is Buyer of the future contract is obligated to sell underlying asset at the expiry?
Sort of, since there is mark to market, the price changes based on the daily settlement price.
Hi Karthik,
Gone thru these chain of communication and appreciate your patience to answer repeatedly.
I am just interested in Futures Trading and understand the basic details form your tutorial.
However i have couple of queries here,
1. Can I place number of future trading with the same multiple times!
2. I can find near / next / far month Future stocks to purchase. Why so and what is the reason?
Ex: Can I buy August stock now and sell by tomorrow itself if i get the increase?
In the Future LOT price is same for all the 3 months LOTs or it vary according to the month (Like July Lot, Aug lot and Sep LOT).
Kindly clarify in detailed.
Regards,
Kumar SL
1) Yes, you can place any number of trades, not an issue. You just need to ensure you have sufficient margins
2) Yes, the reason is that these contracts are available 🙂
Yes, you can buy Aug and sell it anytime before Aug expiry. Yes, lot sizes are uniform.
Hi
I have bought next month’s future and I want to know what happens when the next month becomes the near month.
Thanks in advance
Nothing much happens, Shivani. Is there anything specific you are looking for?
Thanks Karthik.
Few more doubts here.
If I buy future lots June, July, Aug each 1 at X, Y, Z prices today.
Scenario 1: Can I sell Aug LOT by tomorrow itself if the price increases !
Scenario 2: Irrespective of months (June, July and August) though the Buying price is different, selling price remains same !
Ex: Next week HDFC Bank price is 1050 and can I sell August LOT with this price, means is this applicable across all the future stocks I purchased or any difference!
Kindly clarify.
Regards,
Kumar SL
Yes, you can sell t’row itself. The prices across all three months will be different, check the chapter on Futures pricing.
Yes, I want to know if the lot size changes? Currently, the near month lot is 375 suppose and I have bought the next month’s 550 lot. So what will happen when next month becomes current month.
I also want to confirm that I do not have to worry about the expiry of next month’s future this month right?
Lot sizes are uniform across all months and also across futures and options.
Hi Am new to options
I purchased 1 lot of Nifty 10300 June options at a premium of 141.
Right now the nifty is at 10240 and the premium is 103.
My question is 1. if nifty touches 10300 , is it possible that the premium does not touch 141?
If 10300 call target is met do I still lose money since the premium may not increase to higher level
Yes, it is possible but depends on when it will hit 10,300. No, it is unlikely that you will lose money if the call option hits 10300.
In futures if the contracts are not sqaured then at what price will the remaining be squared ?
Depends on the settlement price on the expiry day.
Hi Karthik,
I was under the impression that as the future nears the expiry date, it’s price moves closer to the actual market price (spot price) on that day. Similar concept as time decay. Turns out that is not the case.
Question: On the expiry date, why would a stock’s future have a different price vs the actual market price? There is no time left for uncertainty .
Cheers!
Akash
The convergence happens at the expiry, Akash. Also, if you notice, the difference is very minimal as we approach expiry.
hello sir
sir there are always 3 expiry dates to choose from for the futures. what are the relevance for 3 expiry dates.
These are three different expiries. These are current, mid, and far month contracts. Have explained this in the module.
I wish know whether we can set up Zerodha streak to buy and sell Nifty future contracts… if possible what will be the margin required for MIS position (ie) Intraday closing …as of today to trade 1 lot with stop loss and target. thank you…
YOu can use Kite to trade this. Margins are approximately 40K.
In the example provided about ‘closing’ the position for a profit, how exactly does this happen. You went long the future at a strike price lower than the current strike price (hence your profit), so when you are offloading your contract you are offloading the lower strike future, but the person ‘buying’ the contract is buying it at the current market price (or current future price agreement). So who is paying for your profit?
This is also a main confusion for me as the future price quote only quotes 1 price, but there are many contracts that were created at different prices in the past. What about those contracts?
Tim, I think you’ve mixed up concepts of both futures and options. There are no strike prices in futures.
Sir, does the futures contract expires on last Friday of the month or the day before that i.e. on Thursday? All the contracts have the date Of last Thursday of that month.
Should I square off my contract on Thursday or can I continue holding it till Friday too?
Yes, all contracts expire on last Thursday. After expiry, they cease to exist hence cannot be held.
Hi, how is the intraday margin calculated for futures. Say I wish to trade intraday on BankNifty Aug20 futures. How much margin would I need?
Rohan, you can check this – https://zerodha.com/margin-calculator/SPAN/
Sir, I did not understand your statement when you say that after purchasing 1 TCS Futures contract, you digitally entered into an agreement with a certain counterparty who has to buy the shares from you at 2374.9. What are you exactly doing here ? Are you buying the shares or selling them ?Because in a normal situation, an investor would buy shares on 15th and sell them at 24th, but you say that you are buying the shares at 2374.9 at 24th. Please clarify my confusion.
Its like paying a token advance before you purchase a land or apartment. So you pay a small amount and enter a deal right? Same way in futures also.
Hi Karthik,
Thanks for sharing such a good knowledge free!!
I have one query – There is margin money needed before entering into the future agreement which I think is done to take money from the loosing party to the gaining party. But how is this margin money calculated. I know it’s a certain % of the contract value but can’t the loss of any trader be higher than the margin money? Please advise.
The calculation is based on something called a SPAN technique, which is what the exchanges use.
Thanks Karthik for such a quick reply!!
but is it possible that the incurred loss could be higher than margin money?
Regards
Yes, happened in Crude oil episode early this year. However, in most cases, the systems are built in such a way that your position would be cut before you can bleed more than the margins.
Dear Sir
Can I buy multiple future stock one after other in a day itself with normal position.
Kindly advise me sir
Yes, but do ensure you have the necessary margins for this.
On 16th Dec, will there be a case when no counterparty is found?
No, upon expiry, all trades will be closed, which means there is no counterparty risk at expiry.
hi karthik,
Thanks so much for such masterful articles. One question: What exactly happens at expiry in futures trading? If i wanted to hold a long futures contract on a stock till expiry and i wanted to take physical delivery of the stock at expiry by closing the contract, would it be possible. Will those stocks be added to my demat account?
Thanks.
If you hold the stock futures to expiry, then yes, you are entitled for physical delivery and get possession of the stock to your demat account.
What If I want to square off my position in the middle by transferring the agreement to someone else i.e”my existing buy position will simply be transferred to someone else” and there is no counterparty to be transferred.
Yes, you can by simply squaring off your position.
My Answers-
1- I believe your P&L per share would be Rs. 144.35 [2519.25 – 2374.9 = 144.35] and on overall basis it’ll be Rs. 18,043.75 [144.75 * 125 = 18,043.75] If you had held the position till 23rd Dec 2015.
2- Party who acquired your future contract 16th December will be having a P&L of Rs. 59.25/share [2519.25 – 2460.00 = 59.25] and an overall P&L of Rs. 7,406.25 [59.25 * 125 = 7,406.25] had he/she held the position till 23rd Dec 2015.
Do let me know if my answers are correct.
Also, I’d like the point out/confirm where you have mentioned “The following things happen when I opt to square off the TCS position –” Point 5 says “The profit or loss made on the transaction will be credited or debited to my trading account the same evening itself” According to the new rules laid out by SEBI (from 1st September 2020) the profits from F&O Trades are available only after the trade is settled by the exchange that is on T+1 Day in case of F&O trade. So this new rule will apply here, right?
The P&L is correct, and you are also right on the T+1 settlement. In fact, it was always T+1, its just that brokers were giving the credits for unrealized profits, which will stop going forward. I will update this as well.
Dear sir,
How much stock can gap up or gap down during carrying overnight position? And what if it hits circuit limit then how can we exit the trade?
We cannot generalize this, Amit.
I understand but what if a person buy future @100rs and in next morning suddenly stock gap down @80 rs is this possible in fno stocks or nifty 50 stocks?5)
Thats possible 🙂
I want to if I were open the tha such type of trade and this happens what can we do because at this time losses were too high. So that’s why I want to know this can happen or not
In such a case, if you have the margin, then you can continue to hold the position, else the broker will cut the position.
Dear Sir
Thanks for making the topic interesting. Please clarify the following.
I have initiated a September 2020 future sell on hindalco (lot size 4300) at 175.80 on 9 september 2020 with a target of 168 and stop loss of 178. If the target is achieved, i will activate ‘square off’ option. But what happens in the background.
Is the sell position purchased by someone who hopes that hincalco will go down futher?
Suppose no one is purchasing the sell position what will happen?
Thanks and regards
Yes, when you short, to square off, you need to buy back. When you buy, someone is assuming your sell position.
Hi
Karthik
I am new to this trade and have a specific query regarding Future contracts .
At the time of purchasing Future contract On 07Sep for the month of SEP & OCT for ITC (one Lot each ) I placed my order as carry forward ( Not as Intraday).
On the day of purchase the ITC stock & Future value declined and i decided to keep my position open for the next trading days .
However the broker ( Angel Broking ) has Booked my looses on the position and debited the days loss from my account .
Is the position squared off every day and my looses / profit booked on daily basis , Even if I have decided to keep my position open for carry forward future trade ?
Thanks in advance
No, as long as you have ensured its NRML order type plus you have sufficient margins, you can carry your positions forward.
sir i am little bit confused that in first
buying the TCS futures on 15th Dec 2014 at Rs.2374.9/- the very next day i.e 16th Dec 2014, TCS price shot up. It is now trading at Rs.2460/-. profit would be Rs.85.1/- per share or Rs.10,637.5/- (Rs.85.1/- * 125) thats overall profit right after squaring off the position okk
but you have asked that
On 16th Dec 2014 I squared off my position at Rs.2460/-, obviously by virtue of the square off the contract was transferred to a counterparty. Assuming the counterparty held on to the TCS futures position until 23rd Dec 2014, what would be his Profit & Loss (P&L) on a per share basis and on an overall basis ? then answer is rs profit 10637.5 right because he squared off the position on next day
then how would be Ans: Rs.7406.25/- (profit) = 2519.25-2460*125 is right
main thing is that on 16th dec position has been squared off
Hmm, it depends on the expiry price, right?
Now it’s sep 14th,if I take tcs Oct fut i have to square off on sep24th or oct24th???
Oct 24th.
Hey Karthik, would the profit/loss on trading futures be the difference between the futures prices on the buy and sell date, or is it between the future price and the current spot price? If it’s the former, why not the latter?
That’s right, the difference between the buy and sell price of futures reflects the P&L.
When I squareoff my long buy position and make some profit, how dose it impacts the seller of that future agreement. I mean if I make profit in squareoff , wh3e dose this profit comes from, who losses .
It comes from the counterparty who is paying for it.
Hi, I would like to buy Spot and Sell Futures (Arbitrage) – Is there any way I can get rid of margin requirements on selling futures? as I already have securities in my account and the risk is Zero.
You cannot get rid of margins here, there is no margin benefit here.
Question 1: When we talked about stocks, you said that the company comes with an IPO and we get the stocks from the company itself in the IPO market, and then the stocks are traded from one investor to another in the secondary market. Similarly, what is the origin of the future? Where does it come from?
Question 2: You mentioned that holding 1 lot of Future Contract means that on the expiry date, the opposite party will buy shares from me. Wasn’t I supposed to buy shares instead of selling? And at what price will this transaction take place, the price at which I bought the Future (Rs 2374.9) OR the market price of share when I bought the Future?
1) Future contracts are created by the exchange every month
2) I’d suggest you read this chapter regarding the settlement process – https://zerodha.com/varsity/chapter/quick-note-on-physical-settlement/
Hii
I have a question regarding futures__
If i bought maruthi dec fut 2020,it will be going to expire on dec 30,if i get loss at that time,will i have any option to convert it to jan fut2021
What you can do is roll over the futures…i.e. exist Dec contract and initiate the same position for Jan futures.
If I squared of on 16th when price is Rs 2460. do i get my profit immediately or I have to wait till the contract expiry? if I get my profit immediately then who will pay that money as both buyer and seller will pay at the end of contract expiry?
F&O P&L is settled on T+1 basis.
I have one more query can a seller who shorted the Future can buy and squared off from trade when his point of view changed or if he found that price dropped and he will be in profit if he buy the Contract in middle of trade? How can he do that?
Yes, both the seller and buyer can close their positions at any point after initiating the trade. They can do that by placing the opposite position. For example, the seller can offset his position by buying back the contract.
Hi,
I have a major doubt regarding the futures trade. If I buy today future of value 100 today and sell tommorow, when it is trading at 150. I make a profit of 50 * lot_size immediately. Since these are future contracts which were to be settled on expiry, shouldn’t this profit money be paid to me on expiry ideally ? Giving it today gives me advantage of investing the profit.
No, in futures, P&L is settled on a mark to market basis. So will be settled on T+1 basis.
Here is a critical question – What does it mean by “I now own 1 lot of TCS Futures Contract”? Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from me (counterparty) at Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th Dec 2014.
Hey Karthik, can you please explain this statement again? If I own 1 lot of TCS shares as mentioned here till expiry (physical settlement), what will happen on the day of expiry?
And also if we sell 1 lot of TCS future contract for a profit, where does that extra money, which gets credited in the account, come from? The counterparty might have bought it from me but the margin amount is still being held in his account right? Does this mean that money hasn’t been transferred anywhere? If so, from where does that extra profit (for the seller) come from?
On Expiry, the contract ceases to exist and hence goes into expiry, where it gets physically settled. That extra money comes from the person on the other side of the trade. Remember, your gain is someone else’s loss. The P&L is settled on a daily M2M basis.
“What does it mean by “I now own 1 lot of TCS Futures Contract”? Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from me (counterparty) at Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th Dec 2014.
Suppose I am happy with the money that I have made overnight, can I close out the agreement? Or rather at Rs.2460 per share what if my view changes? What if I no longer feel bullish about TCS at Rs.2460?
At that point, I can easily get out of the agreement by transferring the agreement to someone else. This means I can close the existing TCS futures position and book a profit of Rs.10,637.5/-.”
So what I am saying is,
In short, the buyer of the TCS futures (us, as explained in the chapter) can trade the contract and transfer the risk of price fluctuation to another person if he feels that the future price won’t rise any further.
But what about the counterparty who needs to sell 125 shares at the time of expiry? He is booking a loss when the price goes up as explained in Scenario 1. So what if he expects the price to go further up? What does he do in this situation? He is the “seller of the futures agreement“ right because he is the one who is agreeing to sell the TCS shares on the expiry date? What does he do to transfer the risk to someone else and get out of the agreement before expiry? The buyer can sell his contracts to someone else who is willing to take the risk. Can the “seller of the futures agreement“ do something similar? Am I making sense or have I understood the concept wrong?
I’m sorry Karthik, although I have understood all the concepts which you have explained in an amazing manner, there are some really basic doubts I have in mind.
As you said, every month after expiry, NSE introduces new far month contracts. So who is the first buyer and seller of this contract? If I buy 1 lot of TCS futures, I have digitally entered into an agreement with a certain counterparty agreeing to buy 125 TCS shares from him (counterparty) at Rs.2374.9/- per share.
Who is the counterparty here? The person I bought the TCS futures from or is it someone else?
If I no longer feel bullish and decide to sell the futures contract and a person B decides to buy it from me, who is the “seller of the futures contract” here? Meaning who is the one who has to buy a lot of TCS shares and give to the buyer at the time of expiry?
It is someone like you who has a different opinion in the market 🙂
At any point, there are 100’s and 1000’s of people willing to buy and sell TCS (or any stock) at various different price points. This enables transactions to go through and the buy-sell-trade happens on a regular basis.
I bought a futures lot with margin 2lacs. After some days its margin rose to 2lac 30 thousand so do I need to pay 30 thousand more ?
Yes, you are required to add more margin as and when margins increases.
Thanks, Karthik,
I had misunderstood how the selling of futures work. I went through the chapters again and I am glad to say that I have understood the concept now. Thanks for making this confusing concept seem like a breeze.
Happy learning, I’m glad you found the chapter useful 🙂
is there a difference between profit at the time of square off and value of the future at time of square off ?
Not sure if I understood this query fully.
Why every future contract has different lot sizes in India. In US it seems lot size is always 100. Why can’t be in India ?
But the contract values are standardized, they are b/w 6-8L.
Dear all after buy any future of any stocks and later its price go down that time can we buy again on low price same future like equity when going down the stocks we average the price same we can do here also with future option
Yes, you can average out on futures as well. However, this is a lot riskier compared to averaging on Equity.
if i short any future in equity or indices can i carry that for next day till its expiry..
Yes, you can as long as you have sufficient margins to carry forward the position.
I bought march futures in January and can I sell this contract in February or January ?
Yes, you can.
If I want to buy a future contract, then do I need to maintain any cash deposit besides paying margins at the time of purchasing contract?
Margins are required. A bit of cash over and above margin is good to have to buffer for the daily mark to market.
Sir I had a doubt. Does futures are settled physically or we just get the P/L cash based settlement from the counterparty? And if we get the shares in our demat after expiry then can we sell those in spot market without transferring the risk to other?
All stock futures are physically settled, and index futures are cash settled. Yes, once the shares hit your DEMAT, you can sell them.
If I create my long position on NIFTY future at 15000, and suppose if I am in 100 points profit or loss, then it will settled daily basis from my account ? Or only when I squre off my position ?
Yes, and that process is called Mark to market.
You have done a good job.
Thanks
Thanks, Ashok. Happy reading!
Hello Karthik,
I have few questions on entry price /SL/target price of a given future.
1) Should I take an entry by looking at the spot price of underlying asset e.g. TCS for a given future e.g TCS21MAYFUT or should I consider the price of future contract itself ?
2) Actually ,this question is dependent on 1st question – if we consider spot price while buying / short selling a given future contract , how could I put SL in this case ? I meant to say how to calculate SL while placing a stop loss in future contract.
It would be helpful for me to make my trading better.
1) I’d usually prefer to look at the spot price and act on the futures price. While this holds true most of the times, at times, you can act solely based on futures
2) Again, the entry and exit are based on the spot, but you trade the futures.
Just wanted to clarify, if I had bought the TCS shares on the spot market as mentioned in the above example for RS.2362.35 and waited till 23rd dec when price went to RS.2519.25 I would ve seen profits in price change Even without the futures market, I shall be having a view on direction in price change, and I could have bought the exact same stock for a lower price [as price of TCS futures were 2374.9].
If that’s the case, what shall be the benefits of entering the futures market rather than the spot market?
With Futures, you get to leverage your capital. Have explained that in the leverage chapter. Request you to please check the same.
Is there actual give & take of the underlying shares of stock in case of stock futures?
I.e., if I have bought an XYZ Stock Futures contract — does that imply I will have to actually buy the XYZ stock on contract’s expiry date (and consequently have the money on that date to be able to receive the delivery)?
Hi,
Since, initially in the 1st Futures Transaction
1. You bought one TCS Futures Contract at Rs 2374.9, and your counter party, lets call your counter party (A) sold one TCS Futures Contract at Rs 2374.90.
Now, as you mentioned the day after the contract, TCS was trading at Rs 2460. So, you decided to transfer the contract to someone else, lets call that someone else (B) right? But, here the thing I am not able to understand is that (A) still has a sell tcs futures contract at Rs 2374.90 and someone (B) has a new futures contract that you transferred at Rs 2460.
So, how does this work?
So lets assume on expiry i.e, 24th Dec 2014, tcs futures price is Rs 2400. In this case, had you not transferred the contract to someone else (B), you would tend to make a gain. But since you transferred the contract to someone else (B) at Rs 2460. Both (A) and (B) are theoretically at loss since for (A) the strike price is higher than what he sold (he sold at Rs. 2374.9 and the strike price is Rs 2400) and for (B) the strike price is lower than what he bought (he bought at Rs 2460 and the strike price is Rs 2400)
Shubham, the price of the futures keep changing (and the P&L arising out of this change is settled daily via mark 2 market). So on day 1 if I buy futures at 2374, and on day 2 the price is 2400, then the reference point is that I have a futures position at 2400. The profit in this case i.e. 26 points will be settled via M2M.
This may sound confusing, until you actually carry out a futures transaction 🙂
When we square-off or when contract expires which price is used to calculate profit/loss? I mean Spot price or Futures price?
At expiry, both spot and futures anyway converge and the prices will be the same. If you close before expiry, then you need to take the price at which you square off the position.
Hi all,
the current month is may, If I buy July future do I need to sell it this month (last Thursday) and roll over to next month or can i hold it till july’s last thruday and sell then?
If you buy July contract, then you can hold that contract upto its expiry day, i.e. July’s expiry date.
Let’s suppose SBI spot price is 432.55 (0.4% up) and the future prices is 430.25. So can i purchase SBI futures at 430.25 and sell it on spot price of 432.55 ?
If this happens i will be in a win win scenario as future price always trade less with spot price i can do the trade vice versa. I know this is not possible but may i know why ?
The only problem is that you cant sell the spot and carry forward the position.
Hello Karthik . Can you explain the Futures and Option with a proper set of example as still not getting clarity for the same .
We have 3 full modules to explain this. Please do go through it.
We need to have square off sell option in same day
You can use MIS with SL, right?
Do futures contracts do not specify the price that the owner of the contract will pay for the underlying asset as in the example there is only futures price mentioned ?. If so, the price of the contract itself is how much its owner pays for the delivery of stock at expiry.
then as future price follows the spot price how would it be worth buying in futures instead in cash market at expiry.
Please help, i am very confused.
Traders usually transact in futures market to take advantage of price movement, and the fact that the positions are leveraged. Its not really with an intention to buy futures.
Instead of buying futures what if i bought 125 stocks of a company and sold it ? Is only the story behind the Share and futures different or will there be a change in profit ?
Its the amount of cash you need to spend to do this. Futures are leveraged, CNC trades arent.
Sir, I have a take a bajfinance future for long term, now its under loss. I wish to carry forward to next month future contract. Is this crt or not sir. Or what else I do to carry forward.
Sorry, what do you mean by CRT? You can rollover if you are bullish, i.e. square off the futures and buy the same thing in next month contract.
If I roll over my future to next month, I have to exit my current position, so if I did that my funds will be deducted if it is in loss position. So how I roll over contract by bying next month future.
Thats right, you sq off and then reinitiate the same position in next month.
Assume I’ve done a short CE on a stock, gap up next day the spot went beyond my CE strike price. The same day was expiry and could not square off. I’m supposed to give delivery of the same stock 1 lot size. If I don’t have the stock in my demat. What is the best way to reduce the penality ?
As we approach delivery, funds and stocks will be validated to ensure you don’t default.
I had 2 future contract for July expiry. I was having loss and decided to take delivery. They are not showing in my zerodha account now but money has been deducted. How can I see them? How can I sell them?
I’d suggest you speak to the customer support for this.
Sorry I am asking my query in 2021 for the article you wrote in 2014/15. It seems that in this example of TCS future trade the most important thing is “directional view” and it depends upon the information about TCS and general conditions of IT sector in USA market in the year end. So how do we get these kind of info in various fields of different cpmpanies so we develop correct directional views. I am a novice and trying learn .Hope you answer it.
Dr.Srikanth, although this is written in 2014/15, the content will continue to hold its relevance as the concepts don’t really change. The best way to figure is by keeping track of the sector, and over time you will develop a sense of how the sector functions and you can track its key drivers.
If I bought TCS CALL WHICH IS IN MONEY AT EXPIRY. CAN THIS POSITION BE SQUARED OFF AUTOMATICALLY ON EXPIRY WITH TCS FUTURE SELL POSITION OF SAME EXPIRY
If ITM Call will be offset with a short future.
Really helpful. I have one query. Now you made a futures contract with the seller (someone in the Market). So, what’s the loss for him if he holds the contract till 24th Dec 2015.
Raghu, the P&L depends on the price of the stock.
Please tell me that what’s the margin required to enter into above TCS futures contract ? Do we need to keep that entire 2L+ cash in our trading account or just a margin ?
Please do check this – https://zerodha.com/margin-calculator/SPAN/
Hey! Thanks for the great content.
I read this both in varsity app in my mobile and on this website. What I found is the examples and some more things are updated in the app but not website. Can you guys please update the content on this website and PDFs as well?
Thanks
Checking on this Nikhil.
what happens if u forget to sell your contract??
what will happen to the money
The trade will be settled by your broker.
Sir, can we do BTST in futures?
Yes, you can.
No need to hold for T+2 days?
No need for the future contracts.
As you have said in the above example..
what happens if we don’t have enough funds to buy 125 stocks on expiry date? only differences would be settled or we need to arrange money to buy all the stocks
You need to ensure there are enough funds to fulfil the physical settlement obligation.
Ok, thank you sir.. 🙏🏼
Good luck!
I have bought Oct future of Vedanta, it will have expiry on 30th Sep or in October. First time bought next month future in current month. Please help. Thanks
Since its Oct series, expiry is in October only.
Is the future contract still cash settled in India?
Only index futures, stock futures (and options) are physically settled.
Sir, I had trade BTST in irctc yesterday at 4944 and today, I exited on 5330. But afterwards stock goes up and then I saw some loss, though I was in the profit at the time of exit. Now my question is that
i) how can we see the loss and profit in our account after the exit?
ii) is it counted as our P&L?
iii) and if it does, what can we do to avoid that?
1) It does not matter where the stock goes after you sold. For you to get a P&L, take the difference between buying and selling price and multiply it by the number of shares.
2) No, as I said, it does not matter where the stock goes after you square off your position
Ok, thank you sir..
Hi All
In Zerodha, in Futures trading, when is the last day we have to sell the stocks. For exp if i buy X stock in futures in Oct 21 , is it true that i shld sell it before last thrusday of oct 21.
Regards
Kishore
If you buy futures, you will have to take delivery, which happens upon expiry, which is the last Thursday of the month.
I just checked TCS NOV FUT trading at 3462.35/-
The lot size is 150 and approx margin as shown in kite app is 731.95/- So if I buy now and say the price increases to 3470/- tomorrow. So this means I made a gain of ₹1145/- ( 150 * ( 3470 – 3462.35 ) ) ? That is more than 1.5x gain over my invested amount. Am I correct?
The gain or loss is the difference between the buy and the sell price multiplied by the lot size.
Hi kartik ,please tell why contract value is not lot size* underlying value of futures or(Spot market price)
Contract value is that only, i.e. lot size * futures price.
How does one roll over a futures contract? What is the procedure? Will the profit/loss of the 1st contract be booked at the time of doing this process?
To rollover, all you need to do is close the position you have in derivatives just before expiry and reinitiate the same position in the next month. For example, if I’m short 1 lot of Nifty in Nov, I sell Nov close to Nov expiry and reinitiate the same position in Dec contract.
Do we need to maintain certain amount of funds to show loss in futures if stock is falling?
Yes, good to have that extra amount.
Hi Karthik,
What is obligation in future trading? Rules are same for option trading as well if it take place? When it can take place? If you can please explain with example.
If it’s not current chapter relating question then if you can please share any link.
The obligation is very straightforward, Kamlesh. If you are long stock futures, you are obligated to take delivery of stocks upon expiry. If you are short futures, you are obligated to give delivery of shares upon expiry.
What makes it tricky to understand is the market 2 market and margin nuances.
Hi i have a question regarding future agreement.lets say i buy a future lot of xyz company at a premium price of 2 lakh(1000 quantity) at rupees 100 on 1st of december and today on 15 th of december due to correction price Of stock fall from 100 to 90 and price of future premium decreased to 1.5 lakh as well.if i square off my position on december 15 then what will be my total loss
Your P&L is the difference between the buy and sell price multiplied by the lot size.
In the last paragraph of 3.2 where you post the critical question and answer it, you say that you went into a contract with some party to buy the Lot from you on 24DEC @ ₹2374.9. But you are expecting price to rise from 2374.9 as you said the fall of 3.77% is unjustified. So why would you want to sell at 2374.9?? Also later on in the first scenario you have mentioned that the share price of TCS will rise from 2374.9 to 2450 per share. But that is infact TCS’s derivative’s price. Please clear this confusion.
Sanket, these are 3 different scenarios, so exploring all 🙂
The futures price and the underlying price behaves similarly.
Same query, please anyone explain . Thank You
HI,
Say I go to the NSE webpage and look for the derivative quotes of an XYZ stock. There I find the details for the XYZ futures contract and see that in the order book for the Dec30 future contract there are 2,07,000 buy quantity and 7,93,000 sell quantity.
Shouldn’t there be an equal number of buy and sell quantities? I mean, from what I understood in this chapter is that every buy order is matched with a sell order.
The quantity you see is of total bid and total ask. This is not volume. Based on the demand and supply, bid and ask can be anything during the market hours.
HI,
I saw on the NSE website that DEC30 future contracts are 5,00,000 buy and 10,00,000 sell Quantities.
Shouldn’t there be an equal number of buy and sell quantities?
Because above as explained, every buy order is matched with a sell order.
Please clarify
Please check the previous chapter.
Hi, can you explain, what happens if i do not square off my trade on expiry day. how does settlement take place
Check this – https://zerodha.com/varsity/chapter/quick-note-on-physical-settlement/
I think the concept is clearly explained here, but due to absence of relevant screenshots (latest Kite terminal) I am not confident to try this.
Is there any way I can help? Maybe check the video series?
Hello Karthik Sir,
I have something to ask, like is it possible to trade in nifty futures using only EOD chart & taking as low as 3-4 positional trades for a year by following trend ? I know that I will have to roll over my exiting position on every expiry day. What can go wrong while doing so ? I mean a lot of people talk about trading intraday or swing trading in nifty futures but not about positional trades. I already have burnt my health & money by doing intraday. I am about to quit trading but before that I want to ask you about this positional trades in Nifty futures. Plz clarify my doubt.
Soorj, if it is causing stress, then it is not worth it. I’ve been through this myself, so I understand. Stick to positional trades in stocks, its far less stressful and easily manageable. Roll-over positions can be painful given the daily M2M.
Thank you very much for your reply sir..
Is there anything chatchy in roll over..?
Suppose I have 5 lakh in my trading account, I take one lot of nifty future at 17500 in feb, on expiry day nifty futures is trading at 17800. Can I square it off at 17800 and take new position of one lot of the march..?
I already have spare cash in my trading acoount as one lot costs 1.10 lakh right..?
Is there anything that I am missing..?
Yes, you can Sooraj. Nothing catchy as such with rollover. It’s a simple process, you just need to have the funds.
All the P&L is decided based on the futures price and ot the spot price ??
Is there any use for the spot price in a futures trade?
Its basis the future price. The futures price moves based on the spot price, Aayush.
Thank you sir for clearing my doubts.
Good luck, Sooraj!
Hi Karthik, a screenshot of buying and selling a future would be very helpful i feel for learners like me. because in equity in the terminal i know how to exit the position. but in futures as you have said one has to sell to square off. so the question to you is whether we have to sell one lot to square off or whether we have to exit from the lot which was bought.
thanks.
Ram, do check out the futures videos series – https://zerodha.com/varsity/module/futures-trading-futures-trading/
I bought 1 feb 2022 future contract of sun pharma. I forgot to squreoff on last Thursday of Feb 2022. Now amount worth of 700 sun pharma shares deducted from my balance, sending it to negative balance as there was not enough balance and now 700 shares deposited in my account. I thought futures contract squares off automatically on last day. What should I do?
Its physically settled. Please check this – https://zerodha.com/varsity/chapter/quick-note-on-physical-settlement/
Damn. So, I need to deposit enough amount to cover the cost of 700 sun pharma stock to bring my account out of negative balance, correct?
Yes, please do talk to the support team once for this.
Hello sir,
I wanted to know the significance of the stock’s future price i.e, why does TCS have two price one for spot market and other for futures market ?. And when we are calculating our profit or loss, our investment would be only the margin amount so we will have no mention of future price when we are seeing our profit and loss percentage, right?
Futures is a different segment, Tej. So We have spot and futures. The futures price depends on the spot price. I dint really understand the 2nd part of your query.
18043.75 and 7406.25 are the answers. Am I correct?
Pls tell me abt futures and Option..
If I will take zee march future lot today like 24th . Should I sell today only or not if I got good return that day should I exit same day.. Bcz time is der for 1 month right..
Yes, you can exit the same day. No need to hold to expiry.
Hi kartik,
Thanks to you,,, for explaining futures so clear,,, I have a doubt,, what difference is futures and option, why they trade in option, which is more safest
Thanks
Hi Karthik, Following is the question I have
There were initially 2 parties involved, one if you and the other is the initial seller who sold you the contract at 2374.9. Now you decide to square off the contract at 2460 and another buyer buys it at 2460.
Now, Between who is the new contract formed ?
Is it between the first seller and the new buyer; or is it between you and the new buyer ?
Who will be paying the new buyer when the prices went up on the expiry date ?
Please advice. Thanks
Its between the new buyer and the first seller. The payments happen via the mark 2 market mechanism.
Can I buy a future contract today and sell it the next day? or Vice Versa. Or should I wait till t+2 day to close the trade or exit the position?
Yes, you can buy today and sell it today itself if you want.
Hi Karthik. I am reading your notes for a few days now and I must say that I have been really impressed! 2022 and these are still helpful you see 🙂
Just a quick question. Here in this sentence below, why do you say that counterparty agrees to buy from me? I thought if you are the buyer of the futures contract, it gives you the obligation to buy from the counterparty. I am a bit confused:
“What does it mean by “I now own 1 lot of TCS Futures Contract”? Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally agreed with a certain counterparty agreeing to buy 125 TCS shares from me (the counterparty) at Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th Dec 2014.”
Gulnar, glad you found the notes useful. The sentence means that the buyer and seller simply agree to enter the transaction and assume their respective position. After they do, they are bound by the obligation originating from their respective positions.
Question 1) What would be my Profit & Loss (P&L) on a per share and an overall basis had I held the TCS futures from 15th Dec 2014 (Rs.2374.9) to 23rd Dec 2015 (Rs.2519.25).
Answer –>
profit per share = (2519.25 – 2374.90) = 144.35
Overall profit = 125*144.35 = 18043.75
Question 2) On 16th Dec 2014, I squared off my position at Rs.2460/-, obviously by the contract’s square was transferred to a counterparty. Assuming the counterparty held on to the TCS futures position until 23rd Dec 2014, what would be his Profit & Loss (P&L) on a per-share basis and overall?
Answer –>
profit per share = (2519.25 – 2460.00) = 59.25
Overall profit = 125*59.25 = 7406.25
Sir, thanks for such a question…..one question…..sir for buying futures we need to pay only the margin amount and not the whole contract value right?
Just the margins for both buy/sell of Futures, Tejas.
Hi Karthik,
First of all thanks for this awesome content.
My question is when two parties enter the future contract and if one of them exit, will the new contract holder is obligated to existing old contract holder and vice versa?
For example, in the scenario above, you bought TCS at Rs.2374.9/- and sold it at Rs.2460/- to a new party. The person who sold the contract at 2374.9 to you will be now in contract with the party who bought your contract at 2460. Let’s say these two parties hold the contract till expiry. How will the settlement happen? The old contract seller is expected to sell the shares at 2374.9 and the new contract buyer is expected to buy the shares at 2460. Will it not cause any imbalance?
No, once you exit the contract you have no position in the market, so no obligation. The new contract will now be between the initial person and the new person.
Don’t we consider the interst cost on margin blocked?? And is there any brokerage cost too involved in buying or selling futures?
No, there is no interest cost in margins for regular trading. Yes, Rs.20 per executed order is charged as brokerage.
Price of Future @ 15th Dec – 2374.9
Price of Future @ 23rd Dec – 2519.25
PnL if held it through?
2374.9 – 2519.25 = 144.35
144.35 x 125 = 18,043.75 Profit
Counterparty bought at 2460
Holds till expiry @ 2519.25
2519.25-2460 = 59.25
59.25 x 125 = 7406.25 Profit
If one person is long and makes money, the other is short and loses money, right? Both parties cant make money.
For contract expiring on 27 October , I have active positions. When we select info in drop down menu , if Shows the contract name as TCS22OCTFUT, why is it showing earlier date i.e. 22 instead of 27 October
Hi Karthik R, ಅವರೇ ವೀಡಿಯೋಸ್ ತುಂಬಾ ಚೆನ್ನಾಗಿ ಬಂದಿದೆ,
I got little doubts when I open ce pe otpiona zerodha i could see the difference values like for banknifty is at 39k+ but while in watch list i could 28500 CE and 29000 CE why is this showing very low numbers
Thanks, glad you liked the videos 🙂
Not sure if I understand your query thoroughly. Different values of what?
Hi KR,
Regarding the options strategy i have seen people buying options in 0.2 0.4 numbers but the videos you explained are completely different than one o saw on YouTube please let me know the difference
2 and 4 are lots? The lot size depends on your capital right?
Whether margin for selling futures of certain stocks is insisted upon even when the same stocks are held in my DP Account and the volume of trade is within my holdings?
If on the expiry date the price goes against my contract , the broker can debit my DP account and deliver the stock in DP for contract settlement. Hence the risk here is zero.
What is the procedure for putting through this transaction ( DP holdings based Stock Futures) on the trading terminal?
Yes, margins are required. Yes, the debit will happen upon expiry (assuming you hold the position to expiry), but the said margins are not offset against the stocks.
Hi,
I am buying TCS price at 2375Rs on 12-11-2022 morning 10A.M and on the same day the price is going down around 2345.so you are debiting the loss amount =2375-2345=30 rs on the same day. but still my contract is in my portfolio. the next day the stock is shooting up by 200 rs. Now the stock price is 2545. Now I am squaring of my position and I booked some 170 rs profit. It will be credited to my account. but the previously lost amount of 30 rs also credited to my account. Please clarify here
Yes, you will get the credit. This is called Mark to Market, have explained this in the module later.
I bought One future contract @ 231. Now at the time of expiry it is at 200. Lot of shares is 2300. As I don’t want to book loss, can I bought these shares in cash @ 231*2300=5, 31,300/- I know I will be at loss of 31 rs per share. But can I do this as in a long run whenever the stock moves up I can sell rather to book loss. Please clear as I do not know about this thing
Yes, if you hold to expiry, then the futures contract will be physically delivered.
Following sentence is wrong:
“Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally agreed with a certain counterparty agreeing to buy 125 TCS shares from me (the counterparty) at Rs.2374.9/- per share.”
It should be:
“Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally agreed with a certain counterparty agreeing to sell 125 TCS shares to me (the counterparty) at Rs.2374.9/- per share.”
Thanks for pointing 🙂 We have started updating and fixing typos starting from module 1. We will fix this as well.
It is explained in very easy to understand style.thanks.
Thanks. It was a beautiful explanation. Since I am new to futures market, please let me know what exactly square off means here?
Say I locked up stock futures at Rs. 100 on Jan 1. The contract expires on 31st March.
I bought this because I was bullish about the stock. However, as I moved close to contract expiry date, I find the price has gone down Rs. 70. So obviously I will be forced to buy at Rs. 100 as per the contract norms.
Means a loss to me. In order to avoid the loss you mean i should square up my position? Right? I am not able to understand this. Please help
Thanks, John
Square-off means closing an existing position. So if you have bought, square off means to sell. If you are short, square off means to buy. Square-off does not avoid losses or result in profits. It just ensures you close an open position.
Hi Karthik,
Can I place a buy order on Nifty Feb contract and a sell order on Nifty March contract?
Yes, you can.
Thank you Karthik for the clarity.
Happy learning!
Hello Karthik,
Thankyou for writing such great modules.
Quoting you.
”
You should look at the spot and place your bets on futures. So, in this case, you buy when the spot is at 100 and get out when the spot is at 90….I personally would not pay much attention to future prices.”
Inferring from your above response you suggested that while transacting in futures contracts you should follow the spot market to decide on a stop loss. If the value of the underlying asset hits the stop loss in the spot market you should sell the future contracts(for a long trade).
I understand your advice and agree with it but my question here is that, it is a little troublesome to continuously keep looking at the spot market manually and then square off your position in futures trade. How can you put a stop loss that automatically triggers when the stop loss is hit in the Spot market when you take on a Futures trade. If this is not possible then what practice should you follow to identify stop loss in futures market.
Hope I was able to make myself clear.
Another alternate is to look at % points. Look for what percent % in spot you are comfortable, translate that to futures. For example, if you are willing to take a 3% hit in spot, see what that translates to in term of P&L in futures, and adjust likewise.
My question is how did you say that the future contract which you brought of TCS will expire on 24th december 2015.
How 24th december because i checked the calendar of december 2015 and i saw that the last thursday falls on 31st. So how 24th december?
Its 2014. PLease see the snapshot.
Hi Karthik Sir,
Thanks a lot for explaining Future Trades in such a pristine manner. Huge fan of your writing.
Hey Mohith, glad you liked the content. Happy learning 🙂
Do we need to convert the position from ‘overnight’ to ‘sameday’ if we decide to sell the Future contract on the same day we bought? Or are there any penalty for not converting the position but selling on the same day of buying? Can you please clarify?
No need, go ahead and square off as in.
Thank you Karthik. You are the best! 🙂
Happy leanring 🙂
Hi, please advise if I want to maintain the future position by rolling in next month, how to do that for e,g. I am carrying SBI Jul Future , in last week Jul if decide not to sell , rather rollover to Aug or Sept Fut, how to do that in Kite. Further howmuch is rollover fee
Hey Vijay, check this – https://www.youtube.com/watch?v=FqRB7NGnOtA
Please let me know the website and can you share the link from where you got the above two futures contract image.
thanks
I have a question. Let’s say I buy a TCS future for August at Rs 3263, and I enter into the agreement today itself, I have a long position. I want to hold on to my position till 31 August 2023. If on August 31st, 2023, the futures price is 3265, does that mean I will have to buy the shares on that date at 3265 or I shall buy it at the agreed price of 3263?
Yes, you will have to buy at the prevailing market price for futures.
Hi Karthik,
Suppose I hold the future till expiry and I incurred a loss, So after expiry will this lot of equity come into my Demat account?
Yes, as long as it is stock futures. Index futures are cash settled.
Hello Karthik sir,
Is it possible to get the data of “Historical lot size of all the stock future contracts”?
Like, what was the lot size of ABFRL in April 2022?
Many thanks!
Ah, I think this can be tough to get. Maybe check once on NSE’s site?
Thanks Karthik sir, I found the data:)
Sure, happy trading!
Hi Karthik,
I had sold 1 lot of TCS sept futures about 3 weeks back. Today I have exited my position and the Kite platform is showing that I have a profit of Rs 6711/-.However to exit the position the system had bought 1 lot of sept futures at Rs 3410/- and it is showing a loss of Rs 1828/- at present.
My question is whether my profit would be Rs 6711/- less Rs 1828/- or is it Rs 6711/-
Thanks
Yes, adjusted for charges. Please check with the support team for this, you can also see the contract note.
Could you please answer the same query if the same futures held till expiry:
1. What would be my Profit & Loss (P&L) on a per share and an overall basis had I held the TCS futures from 15th Dec 2014 (Rs.2374.9) to 24th Dec 2015 i.e. till expiry?
2. On 16th Dec 2014, I squared off my position at Rs.2460/-, obviously by the contract’s square was transferred to a counterparty. Assuming the counterparty held on to the TCS futures position until 24th Dec 2014 (till expiry), what would be his Profit & Loss (P&L) on a per-share basis and overall?
Does not matter when you square off, your P&L will be the difference between the buy price and sell price of the futures contract multiplied by the lot size.
Why would you buy the stock at futures price of Rs.2374.90 when it’s available at a cheaper price of Rs.2359.95 in present market?
When you buy Futures, you also have a leverage, which means you can buy ‘more’, for a smaller margin amount.
I am trying to get live future prices in excel for “all” the stocks which trade under the F&O segment. I tried finding it on the NSE website but there only few stock futures are available, is there any place else from where I can get it and why does NSE don’t provide a list of all the stocks which trade under the F&O segment with their live price
They do, check the drop down menu here – https://www.nseindia.com/market-data/equity-derivatives-watch
I have already checked this NSE link you provided above and in the drop down menu under the section “stock futures” it only gives data of 20 future contracts whereas I want prices for “all” the contracts that trade in the futures market
Then in that case, please download the ‘Bhav copy’, from NSE’s site.
but the bhav copy will give me data at EOD, I want the data to updated during the market hours
Then here is something you may want to check – https://kite.trade/
hi karthik sir… assuming there’s an event or usually markets sentiments are any one sided where maximum participants are willing to trade one side , how does the futures gets fulfilled soo easily when there’s few counterparties trading opposite side?
If its truly one sided, then the futures hit a circuit limits. Else there are traders trying to benefit from their view at every price point. In fact, this is where liquidity of the market comes into play.
In Section 3.2 shouldn’t the paragraph be saying :
“I now own 1 lot of TCS Futures Contract.” This means that by purchasing TCS futures on 15th Dec 2014, I have digitally agreed with a certain counterparty that I will buy 125 TCS shares from them (the counterparty) at Rs.2374.9/- per share. This futures agreement between me and the counterparty expires on 24th Dec 2014.
But currently it says we are agreeing to sell the shares.
Because later on in section 3.3 when we are discussing what happens when price goes up we say we are buying the shares not selling them
Hi,
Confused by this statement:
” What does it mean by “I now own 1 lot of TCS Futures Contract”? Well, it simply means by purchasing TCS futures on 15th Dec 2014, I have digitally agreed with a certain counterparty agreeing to buy 125 TCS shares from me (the counterparty) at Rs.2374.9/- per share.”
Shouldnt it be “agreeing to buy 125 TCS shares from them (the counterparty)”
Ah, yes. Since you one the contract (long), you have the right to get delivery of the shares.
Hi Karthik,
Do you recommend investing in Futures as a long term investment strategy instead of buying in cash ? If yes, how much additional funds should I keep in addition to initial margin amount of let’s say 2 lakhs (for 1 lot), for absorbing my M2M losses or how much drawdown of stock price should I be ready for to accomodate the M2M losses ?
No, I’d suggest you stick to stocks itself.
Ok,thanks
Happy learning!
Hi Karthik, you have said that you put in a screenshot from the NSE website for the example above. However, I checked on the price for TCS on December 16 2014, was 1241.39. Is this everything everywhere all at once? Why do I see the difference?
I must have put the live price and you are looking at the close price?
According to the blog futures are what it is basically a contract between two parties that on the particular date he will buy the underlying asset at particular price which is written on the contract, right?
So now why the price of future is changing like the price of the underlying asset.
It is simply the prediction from the buyer that the price of the underlying asset is going to be increase and from the perspective of seller it is going to be decreased so they make the agreement and and the deal happen at the agreement price and date, right?
So my question is that why the price of the future contract is changing??
Thats right. The price changes because the underlying is continuously moving. Check this – https://zerodha.com/varsity/chapter/the-stock-markets/
What if I want to square off my position before expiry and there is no one in the financial position to honor the squareoff at the price that I propse?
Then the position will go into expiry and the system will settle it with the counter-party based on the settlement price.
Hi Karthik,
Hope you are doing good.
I am a newbie here in trading. I have two queries.(may be trivial)
1) let’s say now all PSU’s are in bullish state, so everyone will have the similar directional view. What if I buy the future contract of any psu now and won’t be able to find counter party during the future contract time period (before expiry) ?what happens in that case?
2) let’s assume I buy one lot (100)of ABC stock at 100. In the next following day I square it off @90. In this case only loss (1000) will be debited fromy account or entire amount 9000/- will be debited from my account?
I hope I will get the reply from you🙂🙂
Thanks In advance
1) If everyone has the same view, trades wont happen 🙂 But yup, liquidity dries up, then upon expiry the contracts will be settled by brokers.
2) YOu will be debited to the extent of loss. Not the entire amount.
I have 120k in my account so if i buy 1 lot of BNF fut for NRML req. Margin will be 95k so :
1. Charges will be applicable only once transaction is complete ???
2. My pnl will be shown in positions or holdings ??
3. My balance in account i.e 120k -95k will that be debited or credited regularly as my fut position goes into profit or loss on daily basis ??
Thank you for answering
1) Before the transaction goes through, the margin is checked.
2) Positions
3) Yup
Thank you so much! I was trying to understand the concept from an academic point of view but was going nowhere. It was only after studying your explanations that I realised that my previous source was mixing terminologies (like using strike price in explaining basic futures contracts when it applies to the concept of options only :/). I now have a basic understanding of forwards and futures. Thank you for taking examples from the NSE website and explaining.
Glad to hear that, Swara. Happy learning 🙂
Why to buy the futures contract when you can buy the stock directly in how much quantity u want !
For leverage, Sohail.
sir, well written . I have read so many books . But what content you have furnished in Varsity is unmatched and well written . This must be read by every one who is related to Market . Best content ever read sir.
Only request is that why It cant be sold in Book format-separate module wise (printed copy ) ? This will allow people like us to read and highlight. pl think over it sir . My humble request sir.
Thanks for the kind words, Ravi. About the book format, noted 🙂