Hi pals.After a lot of research into this topic,I am now qualified to poke my nose into this complex topic.Before discussing about futures,I would like to write a little about derivatives.According to Mr Warren Buffet derivatives are financial weapons of mass destruction.I will give you a slightly more positive version of derivatives.
Futures come under the category of derivatives.Derivatives are financial instruments which are basically ummmm a contract. Let me give you an example.
Let us take the example of Sanju Johnny and Jissy Sanny(Both are good friends of mine and are stock market fanatics).Sanju is a cock seller(Male counterpart of Hens.Just in case some pervert guys are reading the article).Jissy wanted to buy 150 cocks from Sanju an year later.He entered into a contract with Sanju and both of them made an agreement of Rs 100 per cock.
Now let us contemplate on the circumstances an year later.Suppose the market price of a single cock soars to Rs 120.Sanju will have to give away each cock at Rs 100 to Jissy.In this way Sanju makes a loss of Rs 20 per cock.
Similarly if the rate plunges to Rs 80 per piece,Jissy will have to purchase each cock from Sanju at Rs 100 and will thereby incur a loss of Rs 20 per cock.So basically derivatives are a contract similar to those in the given example.
Now let us come to Futures.I will give you another example now.
In the case of general stocks you purchase any number of stocks and have the right to sell it whenever you wish.You don't have any obligation in this case.
As soon as you purchase futures,every hair on your body is succumbed to obligation.Mr Alu(Alabhya) another of my friend did not know a s**t about stock markets.He out of premonition made a debut by trading in futures.He liked a company ABC whose each share was priced at Rs 1000.Alu purchased a future contract of 100 shares.Futures always come in sets.For example one set can comprise of 100 shares.You can purchase any number of sets.Coming back to Alu he got one set of ABC company .His set costed Rs 1 lac(1000*100).But in a future contract you have to pay only 15-20% of the total cost.You can also exit the contract before the deadline .On the first day,the share price rose by Re 1.Alu makes a profit of Rs 100(100 shares*Re1).Next day the share plunged by Rs 20.Rs 2000 get deducted from Alu's account(Rs 20*100 shares).Alu gets a thrashing from his wife and is forced to quit the risky venture.
What we saw from the above story is that you should never tamper with futures unless you have experience in the market otherwise they will ruin your future(pun intended).Futures can prove to be very profitable if you trade smartly.
Moral:Warren Buffet is always right.
- Stocks ka "FUTURE" ???
- S^ocks and Politics
- MAGICAL MONDAY MORNING!!!
- Congress ki JEET,BJP ki Defeat,Left....NO NEED.
- By how many point will SENSEX soar on Monday?(my...
- EU Slaps INTEL with more than a Billion Dollar Fin...
- Some News for Unitech Shareholders.
- Elections and the Market
- An article on scents.
- THE FALL OF CHRYSLER,an icon of US Automobile Indu...
- Some financial fundas
- Today's Poll
- Why do I use black color for my blog?
- Monday Magic
- Satyam Fraud:"A great piece of art".
- Something about New Pension System(NPS)
- ▼ May (18)