Trade NSE Stock Futures with Fixed Risk.
Hi NSE Traders,
Greetings to you. Here is an idea / approach to trading NSE Stock Futures. As an ex-Banker from SBI, this is my personal approach.
While most traders trade Options, that comes with far more risks than trading Futures. This approach ensures that your maximum loss can be capped to an amount set by you. It takes the benefit of Hedging to protect capital and the trade. It helps you to close most of your trades in profit, many of them in zero loss and only a few of them in loss. If you buy next month Futures, then you will have 50 days for the trade to yield profit to you - thereby giving you ample time with your logic to work for you.
It helps you to use your capital more efficiently and stay in Green even if you incur losses trading Futures. So, read on.
REQUIREMENTS
Capital Required: Rs.10,00,000 (suggested and used in this Idea)
Broker Accounts : One Trading account each with F&O segment enabled with Two different brokers.
Time-Frame: User-preference. I use 5,15 and 1H TFs
---------
How does it work?
RISK
Let's say that you are ready to take max risk of Rs.5,000 per trade. So you can take Six trades risking total of Rs.30000. (half of interest amount of Rs.60000).
Now, let's say your set up signals a long opportunity and the margin required for the trade is Rs.2,00,000.
What you will do is withdraw Rs.2,00,000 from the Overdraft account and deposit with your broker to take the trade.
Let's say the Buy Price is Rs.1,000 and lot size is 200 and you have taken the trade. If the price goes up, then all good and you will exit the trade as per your Reward levels.
However, if price starts slipping, then, when price comes near Rs.975, you will withdraw another Rs.2,00,000 from the Overdraft account and deposit with your second broker and place a Hedge Sell order at Rs.975. This way you will ensure that your risk is capped at Rs.5,000 if the Hedge trade gets it. (200 lot size X Rs.25). Once it does, regardless of market direction your loss is fixed at Rs.5,000 only till you close both the trades.
Thereafter, you will watch in which direction momentum is shifting and close the opposite side trade and allow this trade to cover the Rs.5,000 loss. Once your loss becomes Zero, it is advisable to close this trade also and not to look for profits. Since the Futures Orders are placed with Delivery option, you have ample time till expiry to watch the trade and exit it in either profit or zero-loss.
Once the trade is closed, you will withdraw money from broker(s) and deposit into your Overdraft accounts so that interest is not charged.
Advantages of approach:
1. Always your loss is capped at an amount fixed by you.
2. By trading Futures you can rollover and need not worry about Time-decay in a sideways market. You can rollover your trade to next Expiry if trade does not show momentum in your desired direction.
3. This approach helps you to stay in a trade and close it either in Zero-Loss or in profit. You will end up losing only your set fixed Loss amount on few occasions.
4. Even if you lose Rs.30,000 on six trades, still as your FD is for Rs.10,00,000 your overall gain will be 30000 and for trading in Futures you will not erode your capital.
5. However, if you have incurred Rs.30000 loss, then you should stop trading Futures to protect your FD and overall interest gain.
CONCLUSION
Trading Options is very disadvantageous to Options Buyers and Time-Decay and volatility will induce lot of stress not to mention lost trades and capital. However, the above approach will help you to trade Futures with calculated risk and minimal stress and fully exploit your trading strategy.
Hope this is of interest to some of you.
Comments / queries welcome.
All the best with your trades.
PriceCatch
PS: As always with any idea / strategy, you and you alone are responsible for your trades and the profits and losses from your trading activity.
Greetings to you. Here is an idea / approach to trading NSE Stock Futures. As an ex-Banker from SBI, this is my personal approach.
While most traders trade Options, that comes with far more risks than trading Futures. This approach ensures that your maximum loss can be capped to an amount set by you. It takes the benefit of Hedging to protect capital and the trade. It helps you to close most of your trades in profit, many of them in zero loss and only a few of them in loss. If you buy next month Futures, then you will have 50 days for the trade to yield profit to you - thereby giving you ample time with your logic to work for you.
It helps you to use your capital more efficiently and stay in Green even if you incur losses trading Futures. So, read on.
REQUIREMENTS
Capital Required: Rs.10,00,000 (suggested and used in this Idea)
Broker Accounts : One Trading account each with F&O segment enabled with Two different brokers.
Time-Frame: User-preference. I use 5,15 and 1H TFs
---------
How does it work?
- Open a FD with any Bank for Rs.10,00,000. @ 6.75% p.a you will get Interest of Rs.67500 - TDS. Let's assume Rs.60000. Half of this is Rs.30000.
- After opening the FD you will avail an Overdraft facility on the Rs.10,00,000 FD. You will get Rs.9,00,000. Bank will charge 1% interest whenever you withdraw money from the Overdraft account for the period it stays withdrawn. (Read your Bank rules regarding Overdraft accounts). Though the Overdraft is for Rs.9,00,000, you will only use maximum of Rs.5,00,000 from this amount.
RISK
Let's say that you are ready to take max risk of Rs.5,000 per trade. So you can take Six trades risking total of Rs.30000. (half of interest amount of Rs.60000).
Now, let's say your set up signals a long opportunity and the margin required for the trade is Rs.2,00,000.
What you will do is withdraw Rs.2,00,000 from the Overdraft account and deposit with your broker to take the trade.
Let's say the Buy Price is Rs.1,000 and lot size is 200 and you have taken the trade. If the price goes up, then all good and you will exit the trade as per your Reward levels.
However, if price starts slipping, then, when price comes near Rs.975, you will withdraw another Rs.2,00,000 from the Overdraft account and deposit with your second broker and place a Hedge Sell order at Rs.975. This way you will ensure that your risk is capped at Rs.5,000 if the Hedge trade gets it. (200 lot size X Rs.25). Once it does, regardless of market direction your loss is fixed at Rs.5,000 only till you close both the trades.
Thereafter, you will watch in which direction momentum is shifting and close the opposite side trade and allow this trade to cover the Rs.5,000 loss. Once your loss becomes Zero, it is advisable to close this trade also and not to look for profits. Since the Futures Orders are placed with Delivery option, you have ample time till expiry to watch the trade and exit it in either profit or zero-loss.
Once the trade is closed, you will withdraw money from broker(s) and deposit into your Overdraft accounts so that interest is not charged.
Advantages of approach:
1. Always your loss is capped at an amount fixed by you.
2. By trading Futures you can rollover and need not worry about Time-decay in a sideways market. You can rollover your trade to next Expiry if trade does not show momentum in your desired direction.
3. This approach helps you to stay in a trade and close it either in Zero-Loss or in profit. You will end up losing only your set fixed Loss amount on few occasions.
4. Even if you lose Rs.30,000 on six trades, still as your FD is for Rs.10,00,000 your overall gain will be 30000 and for trading in Futures you will not erode your capital.
5. However, if you have incurred Rs.30000 loss, then you should stop trading Futures to protect your FD and overall interest gain.
CONCLUSION
Trading Options is very disadvantageous to Options Buyers and Time-Decay and volatility will induce lot of stress not to mention lost trades and capital. However, the above approach will help you to trade Futures with calculated risk and minimal stress and fully exploit your trading strategy.
Hope this is of interest to some of you.
Comments / queries welcome.
All the best with your trades.
PriceCatch
PS: As always with any idea / strategy, you and you alone are responsible for your trades and the profits and losses from your trading activity.
