future and option trading Archives

Stock market trading is a complex and diverse landscape. Thus, navigating it can be pretty challenging, particularly if you are an aspirant or a novice trader.

Staying afloat and profitable demands thoughtful strategies that help you set your trading trajectory and drive you closer to your financial goals.

However, amidst so many trading strategies, which one do professional traders use the most and how do those strategies impact outcomes?

While our best share trading classes in Pune cover them during the course, let’s overview them in this blog to help you learn and acquire them more seamlessly.

What are Trading Strategies?

At the outset, let’s understand what trading strategies are.

So, these are approaches traders adopt to make informed trading decisions.

They involve a step-by-step process during which traders review the situation, analyze it and decide what’s right for their financial objective.

While reviewing and analyzing a particular trading situation, traders consider understanding market volatilities, comprehending risks, a stock’s performance, etc.

Trading strategies can be short- or long-term based on a trader’s time horizon. Thus, they usually involve setting position sizing, specific entry and exit points, risk management rules and trading time frames.

Now that you’ve seen the basics of trading strategies, let’s look at some top ones that seasoned and professional traders use.

Top 5 Trading Strategies

From buy and hold to algorithmic trading, experienced traders use these strategies to trade effectively and stay profitable.

1. Buy and Hold

As the name suggests, this strategy involves buying stock and holding onto them for an extended period, no matter how much ever the market fluctuates.

Traders use this strategy based on the understanding or vision that the market usually fares upwards in the long run. Thus, they hold certain stocks for years to benefit from their potential upward movement.

As for risk, buy and hold has a low to moderate risk as it depends on the market’s long-term performance. Traders usually realize profits over years in the form of returns in terms of capital appreciation and dividends. Thus, it is suited to long-term investors who can wait and endure temporary market fluctuations.

Important Note: This strategy requires buying good quality shares of leading companies. You must avoid using this strategy while investing in small and unknown businesses. One of the keys to finding fundamentally strong companies is to conduct a comprehensive fundamental analysis of the company.

2. Swing Trading

This is another of the top trading strategies. It focuses on earning short- to medium-term gains across days to weeks. In this strategy, traders often look for stocks with a potential to undergo price swings based on market news or trends.

Swing trading involves moderate risk as traders hold positions for a period longer than day trading. The strategy can result in good returns over a short and medium time frame, based on how the market performs. Thus, traders with analytical skills and who can hold stocks for days to weeks can adopt this trading strategy.

3. Growth Investing

This strategy involves investing in companies expected to grow quicker and better than other companies. However, one must note that such companies do not pay dividends. Instead, they reinvest their earnings to expand further. Thus, experienced investors look for companies with a solid growth potential.

Growth investing carries moderate to high risk as companies might not necessarily grow as expected. However, if they do, investors stand a chance to earn high profits. Thus, this strategy is suitable if you are an investor with high risk tolerance and if you look for long-term capital appreciation.

Learn More – Career Options in Equity Market – A New Lookout

4. Futures and Options Trading

Sounds like a familiar name? It must be because it is another popular trading strategy.

Futures and options (F&O) trading involves purchasing and selling contracts that draw their value from a particular asset.

In futures, traders must buy or sell the asset at a set price on the future date. However, on the other hand, in options, traders have the right but not the obligation to purchase or sell at a set price before the contract expires.

F&O trading carries a significant amount of risk given the leverage and complicated nature of the contracts. Profits and losses can be significant, particularly with futures. Hence, you may consider entering F&O only when you have the experience and understanding it takes to deal with them.

Check Out – Future and Options Trading: Brief Detailed Guide

5. Algorithmic Trading

This trading strategy involves determining and entering a set of commands into a computer model. It is an automated process that uses time, trading volume, and price, along with complex mathematical models and formulae.

The algorithms this strategy employs quickly scans market data and places orders faster than human beings, helping traders to capitalize on tiny price differences.

However, algorithmic trading involves moderate to high risk, based on how complex the algorithm and market conditions are. Besides, the algorithm has to be effective as traders rely on it for decision-making. Therefore, traders with a programming background and profound understanding of trading strategies can adopt it.

Want to Learn More About Trading Strategies?

Join EMS, one of the best share trading classes in Pune.

Our courses also involve learning various trading strategies and practicing them. To date, thousands of aspirants have trained with us and become confident players.

Connect with us at +91 95618 61818 if you want to be next and want to explore our courses, faculty members, learning methodologies and more.

Are you interested in futures and options and want a brief guide explaining its various aspects? Then, here’s one serving your needs. It talks about the various essential facets of futures and options trading, including what it is, the steps involved in it, and a few more technical concepts related to it. The guide can help you get a basic idea, although for a detailed explanation and to master futures and options trading, you can join our future and option trading classes in Pune.

What is Futures and Options Trading?

Also called F&O, futures, and options are financial trading that allows you to speculate on the future prices of stocks, commodities, currencies, and indices. So, instead of buying or selling the asset, you deal with it in contracts that derive their value from it. Let’s understand it through an example.

Futures Example :

Let’s say you want to buy a February rice contract. You enter a futures contract to buy 100 kilos of rice at an agreed price by the end of February 2025. At this time, the market price doesn’t matter. On the other hand, the seller agrees to sell the 100 kilos of rice at the mutually agreed price. Both of you now have to buy or sell those 100 kilograms of rice, unless both deal with other buyers or sellers. Now, based on the price changes, the market would determine the profit or loss for buyers/sellers.

Options Example :

Suppose you buy a futures contract at Rs. 1000 and some other trader sells those futures. If the price rises to Rs. 1100, you earn 100 rupees and the selling trader loses Rs. 100. Now, when the stock price falls to let’s say Rs. 900, you lose Rs. 100 and the seller gains Rs. 100. However, you have to pay a premium to avail of the right to make the purchase at the predefined price. For the buyer of the option, the premium can be the maximum loss.

Types of Futures and Options Contracts

Let’s now look at the types of futures and options contracts.

Futures Contracts

Equity Futures: Contracts on individual stocks or equity indices such as the Nifty 50. With this type, you can speculate on stock price movements.
Currency Futures: This involves trading various currency pairs, thus providing a way to hedge against risks associated with foreign exchange.
Commodity Futures: As the name suggests, commodity futures include physical goods like agricultural products, gold, or oil. As a trader, you can use these contracts to speculate on price variations or hedge against price risks.
Interest Rate Futures: These futures track interest rates, usually used to manage rate variation risks.

Options Contracts

Put Options: In a put option, the holder has the right, but not the obligation to sell an underlying asset at a particular price within a set duration. These options are usually used when investors predict a fall in the asset’s price.

Call Options: In a call option, the holder gets the right but not the obligation to purchase an underlying asset at a predetermined price (called the strike price) within a particular duration. Investors usually use call options when they anticipate a rise in the price of the underlying asset.

Important Futures and Options Tips and Points to Remember

Our best share trading classes in Pune cover every essential aspect of futures and options. However, here are some important tips and points to remember.

F&O transactions involve GST, stamp duty, brokerage fees, etc. All these costs are deducted from your profits. Hence, ensure you factor them in while calculating your returns and keep an optimal profit-to-transaction cost ratio.

As a thumb rule, you must understand market trends and ensure comprehensive research.
You must learn how to use tools that enable technical analysis and study various market indicators to forecast price movements.
Work your futures and options trading with a reputed and registered broker.
Decide the capital that you can allocate for futures and options.
Trade with a clear trading strategy, whether arbitrage, hedging, or speculating.
Monitor the market and align your strategy to adapt to changes.

Final Words

So, that was about some basic facets of futures and options trading. Perfecting it requires you to undergo formal training with the best future and option trading classes in Pune. eMS, one of the best share trading classes in Pune, serves that need. Our comprehensive courses, learner-centric approach, and abundant practical exposure let you learn different aspects of the stock market and trade more confidently. Call us at +91 95618 61818 to learn more about our courses.

Category: future and option trading