Understanding the basic terms

UNDERLYING ASSET

The underlying asset that provides value to a futures agreement could be stock, share market indices, currency, interest rates, weather etc.

LOT SIZE

The exchange specifies a specific lot size for each kind of derivatives.

When you trade futures, you perform that in ‘lots’.

This lot size is not divisible. For instance – the lot size of XYZ Company is 50 shares. So, taking 1 lot of XYZ Company would engage 50 shares. So if its shares are trading at Rs 1000, so the worth of 1 lot is Rs 50,000 (Rs 1000 x 50 Numbers)

The exchange decides the lot size. Lot size would be specific for each stock.

VALUE OF A LOT

The worth of one lot would be the value of the stock multiply by lot size.

In most conditions, it is about Rs 2 to 3 lakhs.

MARGIN MONEY

When a trader enters into a futures agreement, he requires not pay the full worth of the agreement upfront-only a small ratio needs to be paid. Here that payment is known as margin money. Generally, margin money would be a fraction ranging from 10% to as high as 35 or 40% in times of intense volatility.

The definite margin money needed to be maintained modify every day, particular by the NSE.

LIFE OF A CONTRACT

The life of one contract is about 3 months.

At any condition, 3 futures agreement will be accessible for trading with a dissimilar time limit to expire – 1month, 2 months and 3-month agreement. 

To perform profitable trading, every trader needs trading tips like as Free Stock Trading Tips and a basic understanding of stock trading terms.