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Futures are nothing but
electronic contracts which
you can buy for 1 month
and hold it, but their value
is evaluated by the underlying
CASH STOCK.
Some traders say me that
if for example Satyam Future
moes up in a day then its
underlying cash stock will
also move up, which is technically
not correct.
The value of Satyam Future
price is evaluated on its
CASH STOCK, i.e. SATYAM
in cash market. if Satyam
is at 400 in cash market
and future is at 402 then
its quoting at Rs2 premium
in Future but this does
not mean that satyam will
move up.
The price of the Future
is decided by the exchange.
The actual way is that if
Satyam in cash market corrects
or comes down then it will
also come down in Futures.Some
people think the other way
round, which is not so.
Let
us give you a simple example
elecltronic contract which
is traded everyday in
your trader terminal software
provided by your broker.
Satyamcomp
DEC FUT 402 (1 lot size
= 1200 shares)
Satyamcomp EQ 400 (No
lot size, there is not
lot size in cash market)
Now
the above example are
for Satyam Computers in
Futures as well as in
Cash market. Satyamcomp
DEC FUT means Satyam computers
Decemeber Futures contract,
which is quoting at 402,
and the minimum lot size
or the minimum number
of shares which can be
bought is 1200.This rule
is set by the exchange
you cannot change it.
So if you want to buy
1 lot of Satyam DEC FUT,
then you will have to
buy 1200 shares at 402,
which is 1200 x 402 =Rs482,400
, but you will not pay
Rs482,400 to buy 1200
shares, instead you will
pay only 10% or 11% of
Rs482,400, which is around
Rs48,240(for 10%).
This
is how it works:-
Everyday
when market opens the
exchange decides the margin
on all the stocks which
are traded in futures.The
margin varies from stock
to stock.It all depends
on the volatility and
total positions, build
up by the traders.If a
future has too many positions
build up then the exchange
increases the margin and
sometimes to 50% also,
and even 100% is possible
on some stocks.
Therefore for example,
the exchange says that
they have increased the
margin in MASTEK to 100%
and it is advised for
traders not to take any
position in MASTEK in
futures, that means that
you will have to pay full
payment for 1 Lot of MASTEK
in futures, although you
will not buy it, as the
exchange has advised not
to enter in MASTERK, but
I am just explaining you
the detail of what
100% margin means.
Most
of the margin % ranges
from 8-12% in most of
the traded stocks.All
you have to do is multiply
the margin % with the
amount of Lot size and
with the price of the
future contract and then
you will get the actual
amount you will give to
broker when buying or
short selling the stock.(we
will only discuss "Buying"
in this whole tutorial)
To know the maring % beforehand
entering in a position
in a particular stock,
please ask your broker
for its list, as they
have all the list with
them everyday.
Now
when we say DECEMBER
FUTURES contract
then let us see what it
means:-
Settlement
is what confuses many
traders.Settlement is
the closing of the position
which you bought or sold
before the settlement
date.For example you bought
1 Lot SATYAM DECEMEBER
FUTURE on 2nd DECEMEBER
2004, then you can hold
that Future contract till
30th Dec 2004. The 30th
DEC 2004 falls on Thursday,
and 4th week Thursday
is called as the Settlement
Day. The settlement is
done on 4th week, on Thursday
in every month.
On 30th December at 3:30pm
your position will get
sqaured off automatically
by the exchange, if you
dont square yourself.
The future contract can
be sold in intra-day as
well, you dont need to
hold the future contract
till the settlement date.Its
all your wish, if you
are getting profit in
2nd DECEMBER itself then
you can sell the future
contract on 2nd DECEMBER
itself.
A
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Best
of Luck!
From
Bookprofit.com
Team
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