CHAPTER 6C : Importance of above / below level calls

In our earlier chapters you learnt some of our trading strategies, wherein we discussed on why is it essential to put a stop-loss in every call and why is it necessary to invest with equal amount in each call. Our third trading strategy is to trade with “Buy Above and Sell Below” levels.

When a trader buys/sells particular scrip, that buy/sell order should be placed at certain levels based on the technicals. This is essentially important in case you are not a full-time trader.

‘Buy Above’ indicates that you have to buy scrip above the specified value. If the price reaches that value, then it will gain strength to go further up and reach your target level. Otherwise, if the scrip does not reach buy above level, the scrip may not have strength and hence may go down. Similar is true for ‘Sell Below’ levels, If the price goes down below that specified level, then it will move further in the downward direction. Otherwise, if the scrip does not reach the sell below level, it may not go down below the level and hence may move upward.

DreamGains as an advisory firm provides Buy Above / Sell Below trading tips only. The reason for this is if you are trading with an advisory firm and they give you a recommendation, you will need a certain amount of time to check your SMS/call and inform about the same to your broker, in case you trade offline. Giving recommendations at market price will lead to you missing out on the trading opportunity.

Also, since buy above and sell below have an advantage of setting the order in advance (either through broker or your terminal), you do not need to wait and watch the market till it reaches that price. Just inform your broker about your entry (buy above or sell below) level, target and stop-loss and you can get busy in your other work. Your broker will put the order in his terminal, and trade will automatically be executed when that price arrives in market and profit/loss will automatically be booked through your target and stop-loss orders.

Buy above and Sell below strategy thus not only indicates good buying/selling levels, but also gives you sufficient time to enter into your positions and the flexibility to trade as per your convenience.

Let’s take an example where we have given a recommendation to buy SBI above Rs. 300/-, with a target of Rs. 310/- and a stop-loss of Rs. 290/-. This means that we have to buy SBI at the rate of Rs. 300.05/- or slightly above only. The scrip should not be purchased at any rate lower than this. If you buy the scrip at Rs. 299.95/- also, there is a good chance that the scrip may fall down from there and hit a stop-loss, as it has not broken our given level of Rs. 300/-.

Let’s take another example where we have given a recommendation to sell SBI below Rs. 290/-, with a target of Rs. 280/- and a stop-loss of Rs. 300/-. This means that we have to sell SBI at the rate of Rs. 289.95/- or slightly below only. The scrip should not be sold at any rate lower than this. If you sell the scrip at Rs. 290.05/- also, there is a good chance that the scrip may go upward from there and hit a stop-loss, as it has not broken our given level of Rs. 290/-.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 6B : Trading Strategies - Why trade with equal investment in each call?

Trading with equal investment in all calls is a trading strategy, which results into a minimal loss. A brief explanation for same is as mentioned below:

Example 1 –

On Day 1, a trader buys 800 shares of SBI @ Rs. 300/- and exits in profit @ Rs. 310/-.

Investment = Rs. 2,40,000/-

Profit = Rs. 8,000/-

On Day 2, the same trader buys 1000 shares of Axis Bank @ Rs. 450/- (as he had got a good profit on day 1) and exits in a loss @ Rs. 435/-.

Investment = Rs. 4,50,000/-

Loss = Rs. 15,000/-

Trader resulted into a net loss of Rs. 7,000/-.

Example 2 –

On Day 1, a trader buys 800 shares of SBI @ Rs. 300/- and exits in profit @ Rs. 310/-.

Investment = Rs. 2,40,000/-

Profit = Rs. 8,000/-

On Day 2, the same trader buys 533 shares of Axis Bank @ Rs. 450/- (equal investment in all calls strategy) and exits in a loss @ Rs. 435/-.

Investment = (approx.) Rs. 2,40,000/-

Loss = (approx.) Rs. 8,000/-

Trader resulted into a net no profit – no loss.

Over a long period of time (a month or a year), investing equal ion all calls thus yields more returns when compared to random investments (by emotions) of any amounts in these calls.

DreamGains thus suggests “Equal investment in all calls as a golden rule to follow”.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 5 : Brokerage Fundamentals

Every Trader/ Investor has to pay a brokerage for every trade entered via the Trading terminal whether online or offline.

Intraday Brokerage - 0.03% for buying and 0.03% on selling, plus taxes.

Delivery Brokerage - 0.30% for buying and 0.30% for selling, plus taxes.

Although the maximum brokerage which can be charged, according to SEBI should not be more than 2.5% of the trading volume.

Brokerage is levied on the total transaction value. Ex: A trader has bought 1000 shares @100 and sold them @105 in intraday, the brokerage calculation would be

• Buying Brokerage = (1000 *100) * 0.03% = Rs. 30
• Selling Brokerage = (1000 * 105) * 0.03% = 31.50

Various brokerage firms charge brokerage in different ways. Some firms charge on total turn-over (buying and selling), some charge a fixed amount per lot whereas some others charge a fixed amount per month irrespective of number of trades or turn-over. Based on the brokerage charging method and available margin, customer can select the brokerage firm. DreamGains customer support team can assist you with finding the right broker for you and providing advice on short-term/ long-term positions. Just follow the link for more information.

Brokerage and Tax Calculation - Intraday

Buy Side

• Brokerage: 0.01 % to 0.03% (Charged on order amount). It is a broker's income.
• Service Tax: 12.36 % (Charged on brokerage). It is excise department's income.
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.

Sell Side

• Brokerage: 0.01 % to 0.03% (Charged on order amount). It is broker's income.
• Service Tax: 12.36 % (Charged on brokerage). It is excise department's income.
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.
• STT Security Transition Tax: 0.0125% (Charged on order amount). It is Central Government's income.

If a client has bought 1000 shares at Rs. 100, then the calculation of charges would be done as follows:

Buy Side

• Brokerage: 30 (0.03 paise brokerage)
• Service Tax: 3.7
• NSE / BSE turn over charges: 3
• Stamp duty / Notary Tax: 2
• Total Amount: 38.70

If the client has now booked profit at 103, the calculation of charges would be done as follows:

Sell Side

• Brokerage: 30.90
• Service Tax: 3.82
• NSE / BSE turn over charges: 3.09
• Stamp duty / Notary Tax: 2.06
• STT Security Transition Tax: 12.88
• Total Amount: 52.75

Total Charges = Buy + Sell = Rs. 38.70 + Rs. 52.75 = Rs. 91.45

Brokerage and Tax Calculation - Delivery

Buy Side

• Brokerage: 0.3% (Charged on order amount). It is broker's income.
• Service Tax: 12.36 % (Charged on brokerage). It is excise department's income.
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.

Sell Side

• Brokerage: 0.3% (Charged on order amount). It is broker's income.
• Service Tax: 12.36 % (Charged on brokerage).It is excise department's income. 
• NSE / BSE turn over charges: 0.003% (Charged on order amount). It is exchange's income.
• Stamp duty / Notary Tax: 0.002 % (Charged on order amount). It is State Government's income.
• STT Security Transition Tax: 0.0100% (Charged on order amount). It is Central Government's income.
• DP Charge: Rs. 18 to 20/- per script, whether the client sell 1 share or 100 shares as it is the charge to close/ Sell Off a particular trade.

If a client has bought 1000 shares at Rs. 100, the calculation of charges would be done as follows:

Buy Side

• Brokerage: 300 (0.30 paise brokerage)
• Service Tax: 37.08
• NSE / BSE turn over charges: 3
• Stamp duty / Notary Tax: 2
• Total Amount: 342.08

If the client has now booked profit at 105, the calculation of charges would be done as follows:

Sell Side

• Brokerage: 315
• Service Tax: 38.93
• NSE / BSE turn over charges: 3.15
• Stamp duty / Notary Tax: 2.10
• STT Security Transition Tax: 10.50
• Total Amount: 369.68 (DP Charge excluded)

Total Charges = Buy + Sell = 342.08 + 369.68 = 711.76

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 4C : Trading Fundamentals - Types of Order

Order Matching Criteria

Order matching process is a price/ time priority order matching mechanism, where priority is given to price and then time. Ex: Trader 'A' enters an order of buying 100 shares of ABC @ 100 at 09:30 AM and Trader 'B' enters an order of buying 100 shares of ABC @ 100.05 at 10:00 AM.

Here the order of Trader 'B' will get the priority of execution over Trader 'A', but if the price of both Traders would have been equal the time priority would have placed Trader 'A' on top.      

Types of Orders

Limit Order - An order (buy/sell) which clearly specifies the price at which the trader wishes to trade is known as Limit Order. DreamGains suggests "Buy Above / Sell Below" (Limit Order) strategies.

Market Order - An order where trader doesn't specifies the prices, and wishes to buy/ sell at the current prevailing market price, is known as Market Order.

SL Order - A Stop Loss Order is used where the trader wishes the order to enter the system when a certain price level occurs on the trading system. Stop loss as the name suggests, is to stop or restrict the losses in a trade to a particular price point. Ex: A trader has bought a share @ 100 and decided 97 as a price point where he will exit, thereby stopping the loss per share to Rs. 3/share.

Trigger Price - Every stop loss order needs to put in a trigger price, which specifies the price point where the order will enter the system and not before that.

Buy SL Order - A stock is trading @ 100, a trader wants to buy the share above 103, he will be putting a SL order where the Trigger Price is 103 and limit price could either be 103 or 103.10

Sell SL Order - A stock is trading @ 100 and the trader wants to sell the share below 97, he would put the trigger price as 97 and limit price at 97 or 96.95.

Bracket Order - Bracket orders are designed to help limit your loss and lock in a profit by "bracketing" an order with two opposite-side orders.

• BUY Order is bracketed by a high-side sell limit order and a low-side sell stop order
• SELL Order is bracketed by a high-side buy stop order and a low side buy limit order

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 4B : Trading Fundamentals - Trading Modes

Types of Trading

The trading style can be broadly classified into 2 categories:

On the basis of Holding period - Investors/ Traders according to their trading capacity of their analysis either trade and square off their positions Intraday or take a Delivery of the stock.

Intraday Trade - When a trader squares off (closes the transaction) his position during the same trading session, it is known as Intraday trading. Here the trader would get an intraday trading limit/ leverage / exposure on his deposited amount.

Delivery Trade - A trade where the investor does not square off his trading position intraday and carries over his trade for the next trading session, is known as Delivery trading. Normally the client needs to pay full amount of the transaction value and no leveraging benefit is available here. The brokerage too is more than that of Intraday.

On the basis of Trend - Traders can buy or sell the shares and then square off their positions gradually on the basis of trend they perceive on a stock.

Buy/ Long - A trader with a bullish (upward movement) view on the stock buys the share first and then sells. Ex: A trader is bullish on Reliance Industries trading @ 1000, he buys 200 shares at 10:30 am @ 1000 and then sells 200 shares @ 02:00 pm at 1010 (remember it is not always that a client can sell his shares on a profit).

Short Sell - This is a very unique concept, where a trader sells a share first (without having that share in his demat account) and then buys it back. The trader has a bearish view on the stock here. Ex: A trader is bearish on DLF limited, which is currently trading at 250; he sold 800 shares @ 250 at 10:30 am and bought back 800 shares @225 at around 03:00 pm, making a profit of Rs 5000. Here the trader has to take huge care that he squares off his trading position before the close of the market.

Modes of Trading

Online Trading - Brokers have now developed their in-house Online trading software, which allows the traders to trade from their home, office, travelling etc via a normal computer and internet connection.

Mobile Trading - Now traders who have a mobility access and WAP facility can trade online via their hand held devices like mobile, tablets etc. Every Trading system is connected to Exchange servers via broker's internal server and Risk Management System. Exchanges have clearly prescribed for a dual password mechanism which has a login and a trading password which expires every 14 days.

Offline Trading - Traders who don’t wish to trade online or cannot operate computers, visit their broker’s dealing room or calls their broker for trading, where a Dealer punches orders for them.

Difference b/w Online and Offline Trading accounts Points of Difference	Online	Offline
Trade execution	Self	Dealer
Trade mode	Desktop/ laptop/Mobile	Phone/ physical visit
Options available	Trading, reports, fund transfer etc	Only trading
Time saving	Huge	Later order punching

.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 4A : Trading Fundamentals - Trading Mechanism Terminologies

Trading & Demat Account - Any trader who wants to trade in Equity markets need to open a Demat and trading account with a SEBI registered Broker/ Sub Broker by filling up a KYC (Know your client) form with necessary documents.

A Trading account is used for the purpose of trading which stores information regarding the Buy, sell price, average price, Limits, Profit and loss statement of the client.

A Demat account acts as a warehouse to store shares bought through the Trading account of the Client; demat account is an electronic account similar to the bank account the only difference being a demat account is used to store Dematerialized shares of a company. DreamGains customer support team can assist you with opening Demat account. Follow the link for more updates.

Margin/ Trading limit/ Exposure - Every Trader is given leverage on the amount of cash and non-cash margin deposited with the member broker, the leverage could range from 4- 8 times on Intra-day basis. Ex: If a client has 50,000 Credit balance in his Trading account he can get limit up to 4 lakh (8 times 50,000). An offline trader normally gets more limit/ leverage than an online trader.

NCL (Non Cash Limit) - Brokers give trading limit not only on the cash available in the trading account of the client but also on the shares deposited with the broker, remember this is only an intraday limit, useful for HNI clients having huge holding with them.

BTST (Buy Today Sell Tomorrow) – It is a technique mainly used to take the advantage of the movement in the stock for 1 day, especially when a news/event is awaited to happen on a particular stock.

STBT (Sell Today Buy Tomorrow) – In this technique, the trader sells a stock today and buys it tomorrow. This CANNOT be done in Cash segment.

Outstanding Order - Any pending order which is not yet executed is known as Outstanding Order. It can be modified or cancelled as required.

Trade Confirmation - A confirmation of trade sent by the exchange is known as Trade Confirmation. It contains a trade number which proves the execution of order.

Order Modification/ Cancellation - Exchanges provide a facility to either modify the price or quantity or completely cancel the existing pending order, but a trade once executed cannot be modified.

Contract Notes - Every investor has a right to get a contract note which is like a bill of his/her trading for the day which mentions everything regarding the trade done for the day, including the name of the share, quantity, time of trade, brokerage levied, net delivery amount, taxes etc. It is suggested that every investor must keep their contract notes with them.

Support - The price point where a stock witnesses buying (demand) and normally stops to fall is known as Support. There could be multiple support price points stating as S1, S2, and S3.

Resistance - The price point where a stock witnesses selling (supply) and normally stops to rise is known as Resistance. Similar to a support point there could be different resistance points – R1, R2, and R3.

Target - Target, as the name suggest is used to book the profits in a trade at a particular price point. Ex: A trader has bought a share @ 500 and decided 510 as a price point where he will exit out of the stock, thereby stopping the profit per share to Rs. 10.

Stop Loss - Stop loss, as the name suggest is to stop or restrict the losses in a trade to a particular price point. Ex: A trader has bought a share @ 500 and decided 490 as a price point where he will exit out of the stock, thereby stopping the loss per share to Rs. 10. DreamGains always suggests to trade with a Stop-loss.

Trigger price - A trigger price is the price which specifies the price point where the order will enter the system and not before that.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 3 : Stock Fundamentals

A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. It is also known as "shares" or "equity".

Grouping of Shares:

Stock exchanges have divided the stocks in several groups on the basis of their market capitalization, compliance, volatility etc.

‘A' Category shares - The top 200 shares on the basis of merit as prescribed by BSE

‘B' Category shares - The remaining shares other than A, Z and T category shares

'T' Category shares - Also known as Trade to Trade (T 2 T) category shares; are those shares which cannot be traded on an intra-day Basis and only a delivery trade can be done in the Equity cash segment

'Z' Category shares - Those shares which have failed to comply with listing requirements, failed to resolve investor complaints or have not provided for their dematerialization of shares to CDSL, NSDL

Trading Volume - In capital markets, volume, or trading volume, is the amount of a security (or a given set of securities, or an entire market) that was traded during a given period of time.

Today's Low - The lowest price at which a stock trades over the course of a trading day is known as Today’s Low.

Today's High - The highest price at which a stock trades over the course of a trading day is known as Today’s High.

Opening Price - The price at which trading on the securities exchange starts on a particular day, is known as the Opening Price for that day.

Last Traded Price (LTP) – The last price, at which a stock traded at the end of a trading day, is known as the Last Traded Price (LTP).

Closing Price - The closing price of a stock is [not the LTP (Last Traded Price) of the stock but] the average price between 03:00 to 03:30 pm. This calculation takes place between 03:30 to 03:40 pm daily.

Gap-up Opening - If the opening price of a Stock/Index is more than the previous Day’s closing prices, it is known as a Gap-up Opening.

Gap-down Opening - If the opening price of a Stock/ Index is less than the previous Day’s closing prices, it is known as a Gap-down opening.

Tick size - The minimum movement allowed for a share on either side is called the Tick Size. The tick size in Equity markets is 0.05.

Dividend - A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders is known as Dividend. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.

Circuit Breakers:

In order to prevent HNI or Super HNI traders take undue advantage of their money power and to reduce the chances of artificial price manipulations, exchanges have put in a price band/ market protection limit or circuit limits on every stock on the exchanges which is calculated on the last closing price of the stock on a daily basis. Daily price bands are applicable on securities as below -

Daily price bands of 5% (either way), daily price bands of 10% (either way) and price bands of 20% (either way). No price bands are applicable on scripts on which derivative (F&O) products are available or scripts included in indices on which derivative products are available.

Ex: The closing price of a stock on Friday was 500, the price band currently applicable to the stock is 10%, the upper circuit limit for the stock would be 550 (110% of 500) and lower limit would be 450 (90% of 500).

Circuit_limits on Nifty/ Sensex :

The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%. These circuit breakers when triggered bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the NSE S&P CNX Nifty, whichever is breached earlier.

• In case of a 10% movement of either of these indices, there would be a one-hour market halt if the movement takes place before 01:00 pm.
• If the 10% trigger is reached on or after 01:00 pm but before 02:30 pm, there would be trading halt for ½ hour.
• if the 10% trigger is reached on or after 02:30 pm, there will be no trading halt at the 10% level and market shall continue trading.
• In case of a 15% movement of either index, there shall be a two-hour halt if the movement takes place before 01:00 pm.
• If the 15% trigger is reached on or after 01:00 pm but before 02:00 pm, there shall be a one hour halt.
• If the 15% trigger is reached on or after 02:00 pm, the trading shall halt for remainder of the day.
• In case of a 20% movement of the index, trading shall be halted for the remainder of the day.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

CHAPTER 2F (Part 1) : Market Fundamentals - Segments of Market

As we see, market segments can be classified into Equity, Commodity and Currency. We will study each market step by step.

Equity

Points of Difference	Cash Segment	Derivatives Segment
Contract Trading	No contract trading exists, Position can be held life-long	Trading happens in contracts, 3-month contract cycle exists
Lots	Trading happens in unit shares	Trading happens in unit lots (i.e. bundle of shares)
Short Sell	Short Selling is allowed only for Intraday (i.e. NO STBT)	Short Selling is allowed for both Intraday and Delivery
Index Trading	Index trading is not possible	Index trading is possible

I. DERIVATIVES, as the name suggests is an instrument which is derived from some Underlying Asset and its movement depends on the movement of the underlying Asset. The price of underlying asset is known as Spot price.

A derivative is a product whose value is derived from the value of an underlying asset, index or reference rate. The underlying asset can be equity, forex, commodity or any other asset. Currently the highest turnover in Derivative segment happens on NSE Derivative segment

II. Why have derivatives?

A derivative transaction helps cover risk, which would arise on the trading of securities on which the derivative is based and a small investor too can take part in the Derivative instrument to Hedge his risk or speculate on market conditions.

III. FUTURES contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Index futures are all futures contracts where the underlying is an Index (Nifty or Sensex) and helps a trader to take a view on the market as a whole.

In India we have index futures contracts based on S&P CNX Nifty and the BSE Sensex. 3 months duration contracts are available at all times. Each contract expires on the last Thursday of the expiry month and simultaneously a new contract is introduced for trading after expiry of a contract. If last Thursday is a holiday the expiry would fall on the previous trading day.

III A. NIFTY Future - Nifty future is the most traded contract on NSE Derivative segment, with a lot size of 50 shares.

III B. Bank NIFTY - Bank Nifty future contract is derivative from the Bank nifty spot Index which represents the Banking sector stocks, lot size being 25 shares.

III C. Stock Future - Future contracts on Stocks are called Stock futures. Currently there are 200+ Future contracts in NSE Derivative segment.

III D. Some Technical Terms:

• Open Interest: The total number of outstanding contracts which are yet to be squared-off as on date.
• Roll over: A process of squaring off the current open position and taking the same directional position in the next series of the Future contract. Ex: A trader has Long 5 lots of Bank Nifty Future on 27th Nov’14 (Expiry day), he is still bullish on the contract, he sells his November month contract and simultaneously buys 5 lots Bank Nifty in December month. 
• Ban Period: Exchanges have prescribed a MWPL (Market wide position limit) of every future contract in the Exchanges. If the open interest of the contract crosses 95% of the MWPL limit, fresh positions in the underlying are banned and penalized. Traders can square off their existing positions but fresh positions cannot be take until the open interest falls below 80% of the MWPL.

III E. Advantages of Future segment:

• Lower Margin
• No Delivery obligation
• High Liquidity & high profit potential
• Trading in Index allowed

III F. Risks in Future segment:

• Huge loss due to leverage positions
• High Volatility
• Difficult for retail investors to manage trades

IV. The OPTIONS contract - The biggest limitation of Future contract is high margin requirement and unlimited loss potential, which sometimes makes it difficult for a retail trader to hedge/ trade in Futures contracts. Options, as the name suggests gives huge kind of options to choose while the trader wants to trade in derivative contracts.  Similar to the Future contract we have same Index and stock option contracts for the same underlying in the options segment with same expiry cycle. Premium is the price paid by the buyer of an option to own the right of that option.

IVA. Options

• Gives right but not the obligation for the option buyer
• Has the same contract cycle and underlying Asset (Stock & Indices) as in Future Contracts
• Limited loss ,Unlimited profit to the option buyer
• Full premium amount has to be paid upfront for buyer
• Seller has to pay margin
• Different strike prices available in a particular Contract Cycle
• Useful in all kinds of markets Bullish, Bearish, Volatile, Stable

IV B. Types of Options:

• Call option - A Call option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy a lot of shares at a predetermined price possibly on, or before a predetermined date. To acquire this right the taker pays a premium to the writer (seller) of the contract. When you expect prices to rise, then you take a long position by buying calls. You are bullish. When you expect prices to fall, then you take a short position by selling calls. You are bearish.
• Put Option - A Put Option gives the holder of the right to sell a specific number of    shares of an agreed security at a fixed price for a period of time. When you expect prices to fall, then you take a long position by buying Puts. You are bearish. When you expect prices to rise, then you take a short position by selling Puts. You are bullish.

IV C. Why Trade in options?

• Low Investment required
• Limited Loss
• Can trade for Bullish and Bearish views
• No Delivery obligations

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.