How To Buy And Sell Futures Contracts?

by Vinaya HS on July 29, 2017

in Finance

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Buying and selling of the futures contracts are similar to that of buying and selling of the number of units of stock from the market without taking the advantage of any quick delivery. There are numerous traders who do not know how to buy and sell in futures; the reason could be that either they are not so keen interested or they fear the risks in futures. No matter what the reason is, futures are not at all a risk.

How Does It Work?

The very first step towards the futures contracts is to buy a contract. When you buy shares, the number of shares can be just one or anything. In futures and options, you can buy a contract that has a proper lot size depending on the stock. The lot size is set for each of the futures contracts, and it might also differ from one stock to another.

Next Step Is Margin Payment

When you buy a futures contract, you do not pay for the entire amount of the contract but simply the margin. The margin amount is supposed to be as prescribed by the exchange. The margin depends on the exchanges that are set for the day. Depending on certain types of parameters, the margin payment of each stock is declared.

How Can You Make Or Lose Money?

For example, you purchased an HDFC futures contract, and the underlying amount is Rs. 511 for each share. And suppose that the price moved to 512 the other day. You will get a difference of Rs. 1, and eventually, you get a credit of Rs. 650 as Rs. 1 per share x 650 shares. Assume that on the following day, the price falls to 510. You get a difference of Rs. 2 per share. Since the price has fallen, Rs. 1,300 (Rs. 2 per share x 650 shares) will be debited from your account. This will continue until you sell the Futures contract or else it gets expired.

Why Is The Futures Contract So Popular?

It is popular because there has no delivery. Another reason for its popularity is its lower brokerage in the futures and that you don’t have to pay for the lot. You only make the payment of the margin, not the entire amount. Futures and options trading should be undertaken with a risk capital that will not change your life if you lose your investment. If you are on a losing platform, you can stand to lose more amount of money that you decided for the margin, and you are only one who is responsible for the entire contract value because of the high leverage nature of the investment.

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