Saturday, 11 August 2018

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Comparison of Future and Cash Segment Trading:


Most of the traders still don’t know that how to trade in Future, may be all traders are not interested; one of the reason may be due to high risk in the future segment. This term is about the difference between the Future and Cash Segment Trading.

Future Trading

In Cash Trading, one can buy any number of shares. In Futures, the trader buys a lot. The lot magnitude is set for every futures contract and it varies from stock to stock and also from company to company.

Margin Payment

Buying a Futures Contract one need not pay the entire value of the contract but just the margin. This margin sum is defined by the exchange. Let’s assume one buys a 1000 Futures contract of a particular company each share costing 50Rs. This will sum to Rs 50000. The trader need to pay only about 15% to 20% of that sum and this sum is called the margin amount. Assuming 15%, the trader need to pay Rs7500 and not 50K.

Cash Segment Trading:

Cash market trading is intended for the people who hope to buy shares with a purpose of taking transport of shares. They need to allocate the full sum towards the purchase of the shares at the time of placing order. This means that the trading account must have adequate funds to take care of the overall cost of the acquisition of the shares, brokerage and additional charges. These shares get carried to the investor’s account after the reimbursement process. The investor may trade the shares on the subsequent trading day, given that shares are not trade to trade segment. Under this term, the shares can be sold only after the receipt of the same.
Where the cash segment marks-

Sum differential
It is a value nothing that the charge of the shares in the cash segment is typically lower than the future price. So if its available for Rs50 in the Futures Segment, one should get it for Rs 48 in the cash segment.

In Futures, a trader needs to pay 33% tax on the profit. In equity its proportion of 10% (short term capital gains) if trading is done within a year and no tax if sold later a year (log term capital gains)

Elasticity in purchases
In the cash segment, one can pick up as many shares one wants starting from just one share. In futures, traders can’t buy less than the lot size prescribed. If required to buy more, traders can but it must be in multiples of the lot. So one to two contracts can be purchased.
How to make money

The trader purchases the share for Rs 50 each and the next day the share moves to Rs52. The divergence is Rs 2 per share. Hence the trader gets a credit Rs 2000- 2 per share*1000 shares.
The following day, it dips to Rs49. The difference is 1 Re per share. Since the price has dipped, Rs 1000- Re 1 per share *1000 shares is debited from the account. This will continue till trade the futures contract expires. So on daily basis money is gained or lost.
Can successfully short sell

When a trader sells shares without owing them, it is known as short selling. One would do so if it is believed that the value of the stock is going to drop. These ways traders sell it at a higher rate and buy it at a lower rate and eventually increasing to make huge profits.
Risks in Futures are higher
From an investors point of trader should invest in cash segment. Since Futures are the trading tool, the risk is also high to a large extent.
Where can a trader trade?
All stocks are not allowed for trading in derivatives. To check the list of stocks vacant for trading, traders can see in NSE websites. But to trade in futures, the trader will have to approach a broker who is authorized to trade in derivatives.

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