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Indian Stock Market Tutorial
   
   
   
   
   
   
     
     
 
What is Stock Future ? How to trade in Stock Future ?

To understand the Stock Future, we should understand first two things first one is contract and second one is lot size.

A) Contract - Each Future having a duration and on or before that time we have to settle that. Example, suppose SBI Future 29 Nov 2012. It is a contract which will be fully closed by exchange on 29th November 2012. Normally a contract duration approximate 3 months. Means if November expiry is running, then you can buy the contract of January and you can also buy December Contract also. Hope this word contract clear to you now.

B) lot size - Exchange has defined a particular lot size for each stock according to their market price. If any stock current market price is around 2000-25000 then its lot size defined by exchange is 125, same if any stock current market price around 30 rs then its lot size 8000.

Suppose SBI current market price is Rs. 2000 on 30 oct 2012 and you think that it can move to Rs. 2020 in next few minutes or in next hours or in next few days. So one option is there, you can buy 10 / 20 /50 / 100 / .../ 1000 quantity from equity market. Means you can buy shares. If you are buying 100 share of SBI at Rs. 2000, it means it will require Rs. 2 lac minimum to buy this stock. Mostly brokerage house giving intraday margin. It could be five to ten times of your capital. If you have 50000 rs in your trading account, means if you can buy the shares of 2.5 lacs for intraday trading if your broker giving you five times margin. Normally, broker tell us to clear our position before 3:15 pm. So suppose you bought 100 share at 2000 and it not moved 20 rs as per your expectation today and came down to 1980. And time came to close your intraday equity position, it means you will have to book loss of 2000 rs. And may be possible, next day morning SBI will open at your target price of 2020. Some broker giving facility to hold your stock for three to five days without paying full amount. But suppose if your account balance is Rs. 50000 and you bought 100 share of SBI , and if any case SBI or Market started coming down heavily then broker can ask you to clear your position or to pay the full amount or some more amount for their safety. So Stock Future is somehow good in this kind of situation. So, if you think that SBI is good , so you can buy SBI Future. SBI Future lot size is 125 nowadays. Means you are going to buy 125 share of SBI in one go. Means you are going to buy one lot of SBI Future. You can buy November contract or december contract or january contract of SBI Future today. Mostly you will find difference in spot price and future price. If in cash, SBI running at 2000 then SBI Future may be 1980 or 2020 or any price. Only margin require to buy any Future. Margin could be 15% also and it can be 100% also, it depends on stock volatility. Suppose SBI Future require margin of 18%, so to buy a one lot SBI Nov Future at price Rs. 2020, it require

2020 ( Furure price ) x 125 ( lot size ) x 18 ( Margin )
------------------------------------------------------------------------------------------- = Rs. 45450
100

It means if you have Rs. 45450 in your account, you can buy one lot of SBI Future. This Rs. 45450 amount known as initial margin. So let us suppose, you bought SBI Future today at 2020 and just after 10 min it becomes 2035. It means you are in profit now. If you want to book this profit you can sell your future at 2035. So what will be your profit . Your profit will be

[ 2035 ( sell price ) - 2020 ( Buy price ) ] x 125 ( lot size ) = Rs. 1875.00

But suppose you bought at 2020 and till market closing it not moved and came down to 2000, it means you are loosing Rs. 2500 at closing time. But you dont want to book this loss, so no problem to carry hold your position for next day. If your account balance was Rs. 1 lac then Rs. 2500 debited from your account and margin 45450 will be blocked. Means still you will have approx 50000 for other trading. Now if next day SBI Future open at 2040 and you want to book profit then just sell it at 2040 and your profit will be 20 x 125 = Rs. 2500. But your account will be credit according to its previous day closing price. As we assume that it closed at Rs. 2000, so your account will be credited with 40 x 125 = Rs. 5000.00

If you bought SBI Nov Future on 30th oct 2012 and Nov 2012 expiry date is 29 Nov 2012. So you will have to clear your position on or before 29th Nov 2012. If you are not doing so, then exchange will do it and you will have to pay some penalty. You can buy January 2013 SBI Future contract before three months means on November month and may hold till last thursday of January 2013. It is known as positional stock future.

Now I hope that Stock Future trading concept is clear to you. If you want to share your view with us or having any kind of query and want to ask any question then you can post it here, as soon as possible, you will get the reply.You can directly write to us to email id "smileadvisory@yahoo.com"

 

 
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