We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- Leverage plays a key role in futures trading.
- Margins allow us to deposit a small amount of money and take exposure to a large value transaction.
- Margins charged is usually a % of the contract value.
- Spot market transactions are not leveraged; we can transact to the extent of our capital.
- Under leverage, a small change in the underlying results in a massive impact on the P&L.
- The profits made by the buyer is equivalent to the loss made by the seller and vice versa.
- The higher the leverage, the higher is the risk and, therefore, the higher the chance of making money.
- Futures Instrument simply allows one to transfer money from one pocket to another. Hence it is called a “Zero Sum Game.”
- The payoff structure of a futures instrument is linear.
Seems so simple.
But the risk is real and it is hidden under unseen.
Yeah, in trading you need to decipher where the risk lies 🙂
How to read IPO’s? How should one know whether you should invest in an IPO or not.
For long term, you will have to do a full-fledged FA on the company before investing. If you are playing for listing gains, then keep an eye on the supply demand situation/hype for the IPO and decide.
Should we wait till the expiry to exit the market? If I buy at 1710 and the price reaches 1720 one week before expiry, is that allowed? or there will be some loss?
No, there is no need to wait till expiry. You can exit the position anytime you wish.
Like if my risk per trade is 100 ruppes on trade if my stoploss hit will I lose only 100 ruppes or I lose 500 ruppes depending on how much leverage brokerage providing hope your getting my point and it same goes to wise versa
If you’ve placed a stoploss in such a way that you will lose Rs.100, then thats the max you will lose (provided the SL order gets executed). Not the leverage amount.