Trading stock future is not as simple as trading a trading stock future we are not taking the delivery of the stock and playing on margin.Stock future position has to be settled in cash on or before the expiry of future settlement. Knowledge of the following 18 necessary things before trading stock future can be of tremendous help.
(1)Stock future has predefined minimum fixed lot size to trade.Stock future trade can give unlimited profit or loss.Profit or loss is directly proportionate to underline price of stock future.Profit or loss can be calculated by difference of price at which future bought or sold and the prevailing price of future*lot size of stock future.
(2)Trading stock future requires margin money to be paid as decided by the stock exchange depending on volatility and market wide position of the stock.Extra money should be held with us to pay as difference if the trade goes in wrong direction.
(3)Stock future can rise or fall to any level during a single trading session as there are no circuit filters imposed in the most of the stock should be able to pay the mark to mark difference given a notice.
(4)Stock exchange can put stock future of any stock under curb if member wide or market wide limit of the future exceeds certain predefined percentage is always better to check before future trading whether the stock future is under curb or not.Trading a stock which is under curb can invites penalty to be paid as decided by the stock exchange.
(5)Stop loss placed for stock future is valid for only a day in some stock have to place a new stop loss again on next is better to check whether stop loss kept is valid for a day or good till date in the exchange in which we are trading.
(6)It is always advisable to place stop loss with sufficient trigger price and sale price difference to have better chance of trade to be executed.Keeping low or no difference between the trigger price and the sale price can sometime become very harmful if trade is not executed and queued for sale.
(7)We should always keep in mind the future expiration date before and after a trade.
(8)We should always check whether the cash price of the stock is inclusive of any divided, right, bonus, spilt rights or not.
(9)It is better to check historical volatility of the stock and take the notice of any abnormal deviation .
(10)Monitoring the volume of the stock future is a very good abrupt rise in the volume should be spotted.
(11)Monitoring the open interest addition and subtraction of the stock future is essential.Unusually high addition or deletion of open interest should be traced immediately.
(12)It is good to check cost of carry of the stock future whether positive or negative with respect to spot stock price.
(13)Keeping the watch on unusual activity in options of the stock future we are trading can be very beneficial.
(14)We should take a note of current month stock future price and next month future price if it is in the premium or discount to current month?s future price.
(15)We should always try to co-relate change in open interest, cost of carry, volume, volatility to future stock price.
(16)We should watch the rollover near expiry if it is below or above the previous month in percentage term.
(17)We should take the help of technical charts before executing a trade. We should look for the chart patterns and break-outs.
(18) It is always advisable to consult a professional expert advisor if we want to trade the stock future.
Narendra Nainani , Renowned Technical Analyst of India having experience of 26 years provides Advisory services for Indian Stocks.Advice for NIFTY, SENSEX, Future and Options Option Put Option Recommendations, Derivative Strategies daily via SMS and yahoo messenger.