The Indian stock market has come a long way. And given the piqued interest of individuals, it has become a tricky place. And there is no correct way to go about it. It all boils down to how well you understand the market.
To simplify, let’s begin by understanding the two categories of assessment methods – Futures trading and Options trading.
Futures Trading: A Brief Overview
In a typical futures trading contract, one party commits to purchasing a specified amount of commodities or securities to take delivery on a specific date. The contract’s selling party consents to deliver it.
Here’s What You Should Know
1. Understanding Leverage is Critical
Leverage enables investors to buy a significant commodity volume with a relatively modest investment. To establish a long or short position, you frequently need to invest little more than 10% of its value. Thus, leverage with caution.
2. Only Trade’ Risk Capital’
Futures trading may be dangerous since you risk losing more money than you first invested. Create your risk profile and go over the asset classes best for you. And only use “risk capital,” or money you can risk losing when trading.
3. Leverage ‘Stop Orders’
You need to know when to get in and get out. A stop order is an instruction to purchase or sell at a specific price to limit losses and lock in gains. Traders should ensure the exit point is farther away from the entrance point, or “stop order,” while deciding on entry and exit positions.
Options Trading: A Brief Overview
Options are contracts that provide the buyer or seller of stock the right to do so at a particular price at a defined date in the future. You have the choice but not the duty to trade the underlying security. Thus, you reduce your financial risk and increase your chances of making money.
Here’s What You Should Know
1. Plan for Undesirable Outlook
In situations with undesirable outcomes, consider every possible result. Recognize when to take advantage of market volatility by positioning yourself as the investor for the best result.
2. Writing Covered Calls
You can receive the revenue from the option premium without selling the stock by writing covered calls. But there’s no risk reduction. You retain the option premium if the stock value declines, but you continue to bear the burden of stock ownership risk. If the stock increases, you will lock in your profit at the strike price of the calls plus the premium you collected, thus missing out on the future upside.
3. Enhance Your Portfolio With Options
Options trading is a terrific method to increase income and reduce risk in your portfolio. Place the proper bets to improve your chances of success regardless of your intended result, such as increased revenue or stable development.
The stock market is diverse and difficult to understand all at once. Besides the above-mentioned pointers, you must also understand the different trading strategies to choose the best suits you. Get as much information as you can before you start trading!