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What is Futures trading?

In this article we will see what is futures trading and how its different from regular equity trading

FUTURES trading is EQUITY trading on steroids! But in FUTURES, you are not really buying any equity. You are simply buying a promise, a contract. Read this training material for details https://munafasutra.com/page/ebook Just like EQUITY trading, you will need a trading account for FUTURES trading also. Brokers include all these instruments in a single trading account, so you need not worry about this. All the rules of trading and profit making are same. BUY low, SELL high. In EQUITY, you first need to buy a stock, and only then you can sell it. Intraday trading is allowed in some stocks, where you can sell first at a high price, and then buy later at a lower price, thus buying low and selling high. But in EQUITY, this is only allowed in intraday. You cannot carry your SELL position for tomorrow. In FUTURES however, you can carry your SELL position for a day, for a month, for 2 months, or even 3 months, depending on expiry of contract. Later when stock price comes down, then you place your BUY order to exit your SELL position, and make profit. In EQUITY you can buy 1 single share if you want. Not possible in FUTURES. In FUTURES, a minimum amount is fixed for different stocks, called LOT size. LOT size of NIFTY is 75, LOT size of BankNifty is just 20. You can only trade in multiples of LOTS. 1LOT=20 quantity, 2LOTS=40 quantity, 3LOTS=60 quantity and so on, for BankNifty. If you were trading NIFTY, then 75, 150, 225 and so on... In EQUITY you need to pay full price of trade. So if stock price is 200, and you bought 10 quantity, then you need to pay 2000 bucks. In FUTURES, you need to pay only 10% to 20% of total amount, depending on margin provided by broker. Basically, you are trading large quantities, but with just 10% investment. Your profit and loss is calculated on full quantity though. This is why, profits can be HUGE, and losses can also be HUGE. This is why, NEVER EVER trade FUTURES without a stoploss. Price shown for FUTURES of the stock will be slightly different from price of same stock in EQUITY. This is called price in discount, or price in premium. Generally the difference is very small. Read the training material and terms like Expiry, Margin, Discount etc will become more clear to you.