Margins - Currency Futures & Options Trading | 5paisa School
Arbitrage opportunities in options - how options are priced, explained in layman's terms - without resorting to the BS pricing model
Alright retards, I've been laid off at work due to beervirus and I've been eyeing and toying with the idea to get back into options trading. I'm writing this post to raise the bar for discussion on this sub, I'm tired of seeing just memes. We'll never match WSB unless there is a healthy mix of dankass memes and geniass discussions. Now, when it comes to options, I am completely self-taught (completely from first principles, back in 2008, before you autists came up with the idea of watching videos on youtube). Since I am completely self-taught, my perspective will be different from the people who learnt this stuff while studying MBA/finance courses/NSE accredited investing courses. So if what I'm saying is different from what you've heard from the dude who swindled you of 20K for two days of options education or your gay BF's live-in partner, remember when it comes to maths, there are many ways of approaching a problem, ultimately, all are the same - profit means account balance goes up, loss means a loss post on ISB goes up. Now, I'm assuming that you understand how options work. If not, I suggest heading to Zerodha's Varsity to read up on options. If you're too lazy for this, get your micro-dick outta options, this is a man's game, surprise butt-sex awaits amateurs. I'm also assuming that you've come to realise that the sustainable way to make money in options is to write options. Unless you've got Trump or Ambani on speed dial to get access to news before it becomes news, YOLOing whatever rent money you have on buying options will blow up your account, eventually. Writing options also means the possibility of account balance going tits up is a real possibility. You gotta, gotta, gotta measure and manage your risk. You can do this only when you understand options as well as your dick. Towards this, I intend to put up a bunch of posts (depending on many of you shit heads are still reading at this point) that comment about little things that are more of 'wisdom' than 'education'. The example below talks about currency derivatives. Why currency? Read below:
Lower margin needed. I can short a CE/PE contract with only Rs.2000, unlike the >Rs. 70,000 for index contracts. You get to learn, play and wisen up with an order of magnitude less money than with Nifty or Banknifty contracts.
More stable underlying. When you're shorting contracts, the last thing you want is the underlying asset going crazy like a broncho during rodeo.
Sooner or later, you end up acquiring a more balanced education on economics as a whole, rather than the shit fest that goes on in the local circles.
The more contracts you can short, the more strategies you can pursue
Decent hedging is possible without throwing away all of your potential profits
Lesser stress (anybody else going through premature hairloss or is it just me?) because of points outlined above.
Alright, today, I'm going point how the put-call parity works and by extension, show proof for 'efficient markets' by pointing out how opportunities for arbitrage is pretty much non existent, so you guys can cool it with the whole 'market manipulators' knee jerk reaction. Alright, to start off, here's the current spot rate of the USD-INR pair: https://preview.redd.it/qup28ay567j51.jpg?width=452&format=pjpg&auto=webp&s=b79ef1a3480e5cbafa42547143c651397ec57f13 Here's today's USD-INR futures closing rate for Sep expiry: https://preview.redd.it/krghirc677j51.jpg?width=511&format=pjpg&auto=webp&s=60d52b785baa8a1cd240d0df7949a48c8391ba2d The difference between spot and futures rates is due to differences in what is construed as 'risk-free' interest rates in the US and in India. Check out this video if you want to understand why the Sep futures is trading at a premium of 27 paisa to the spot rate. Alright, so the deal is, if you buy 1 futures contract @ 74.49, unless the USDINR exchange rate rises by 27 paisa at the end of Sep (i.e. a spot rate of 74.49) you won't make a profit (ignoring brokerage and stuff). If the exchange rate were to remain the same without any change, you stand to lose (0.27 * 1000, currency derivatives have a lot size of 1000) Rs. 270 per lot. Even worse if the rupee were to appreciate (i.e. exchange spot rate goes down). Now bear with me if the next few paras are exceedingly boorish, I need to spoon feed people who aren't used to currency derivatives. My strategies are mostly aimed at playing a more risk balanced play, something that yields consistent returns which can be compounded. 10% profit compounded monthly gives 314% growth per year, 3.5% profit compounded weekly gives ~600% growth per year. Given how the USDINR rate is crashing, one way to profit would be to short a futures contract (duh!). The orange line indicates the current USDINR exchange rate As indicated above, if the exchange rate does nothing and remains as is till end of Sep, each lot of USDINR futures shorted yields about Rs. 250 in profit (for something that takes up Rs.3000 in margin, that's a >8% profit in return). Things look even better if the exchange rate were to fall further. The problem is that things heat up quickly if the exchange rate were to go up. Ideally we would want to hedge against it (which also reduces the margin needed drastically). One way to hedge it would be to buy a at-the-money call (74.25CE @ rate of Rs. 0.555 -> Rs. 555 per lot (i.e 0.555*1000)). https://preview.redd.it/ze16kyphv7j51.jpg?width=588&format=pjpg&auto=webp&s=a3c2bba9fb314beff309671f03a013e69e08f4e0 Having purchased a call option, the P/L curve now looks like: The max loss is now limited to Rs. 315 The keen-eyed among you will recognise the above P/L curve as one that matches that of a put option. By shorting a futures contract and buying a call option (both with same expiry), we have created a synthetic put option that would have costed us Rs. 315 (0.315*1000) for one lot. Now, why go through all of this hassle if we can get the same returns by just buying a put option? Makes sense, as long as we can purchase the 74.25 strike put option at a price lesser than Rs. 0.315 (see above). Let's see what the put options are going for: Well, how about that... The market price of 74.25 puts are exactly the same price as our synthetic put. While the synthetic put came in at Rs. 0.315, the put costs another 0.005 extra to avoid the trouble of shorting a futures contract and buying a call at the same time. This is not by chance, big trading desks have algos (trading bots for the virgins here) that keep an eye out for price disparities. In this case, if someone were to be willing to pay more, the algos would compete amongst themselves to sell the puts at any price above 0.32. And if someone were to be willing to sell a put for less than 0.315, the algos would immediately buy. The price of the puts move in sync with the prices of the futures and call contracts. Conversely, we can create a synthetic call, and you will notice that the price of the synthetic call works out to be the same as the market price for the 74.25 strike call. We can also create a synthetic futures contract the same way. The prices of derivatives aren't decided willy-nilly. They are precisely calculated at all times, which forms the basis for the best bid/ask prices. There is no room left for someone to come in and make free money via arbitraging using synthetic contracts. If you found this insightful, and would like more of this sort of posts, let me know. Options when used properly, can be used to generate risk adjusted returns that are commensurate with the amount of risk you are taking. If you are YOLO-ing, sure, you can double or triple your money, because you can also lose 100% of your margin. Conversely, you can aim for small, steady returns and compound the crap out of them. Play the long game, don't be penny wise and pound foolish.
Foundation knowledge to invest in stock market in India
Hello everyone, I thought many of us are willing to invest in stocks or the stock market in India but are unaware where and how to begin. I am posting about the basic details: Basically, we have exchanges which provide us a platform to deal in stocks. Definition of exchange: Open, organized marketplace where buyers and sellers negotiate prices. There are a total of 21 stock exchanges in India, with the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) being the largest. For commodities we have MCX and NCDEX Well, the first step, talking in India you need a demat account. Now what is that: An account that holds all the shares that you purchase in electronic or dematerialized form. Basically, a demat account is to your shares what a bank account is to your money. Like the bank account, a demat account holds the certificates of your financial instruments like shares, bonds, government securities, mutual funds and exchange traded funds (ETFs). Now with that definition, let me elaborate you need a demat account only if you are willing to deal in Shares that too taking the delivery or holding the shares for T+1 day. If you want to invest in other than stock market you need a demat. BUT if you are planning only intraday or day trading; you don’t need a demat account. YOU NEED ONLY TRADING ACCOUNT. How to open a demat account? Choose a broker on parameters: brokerage charges, annual charges and leverage provided. Fill up a form; submit documents like PAN CARD, CANCEL CHEQUE, ID PROOF, and INCOME PROOF (BANK STATEMENT OR ITR) AND INVESTMENT OR MARGIN CHEQUE. WHAT IS MARGIN AND LEVERAGE? Margin is your investment amount that you are investing and leverage is the limit you get on it. Let’s say you have 10,000/- to invest that is your margin and leverage is limit that broker provides for trading. Like if he gives you 4 times limit that means you can make a trade where you will need a margin of 40,000/- Why? Because broker make commission on turnover more turnover you make in buy and sell more profit he makes. You have types of orders at trading platform or the terminal: CNC (Cash n Carry): For delivery based equity trades. To buy stocks for CNC or for delivery 100% money required. To sell stocks as CNC, stocks need to be available in holdings. MIS (Margin intraday square off): For intraday trades Trade using MIS for additional leverage/margin. All MIS positions auto-squared off 10 to 15 minutes before close of markets or when losses exceed 50% of margin (Auto-square off rule can vary based on market conditions).
Upto 10 times intraday leverage for equity
Upto 3 times for futures
Upto 3 times for options shorting
No leverage for option buying
NRML (Normal F&O trades): For intraday/overnight F&O trades without additional leverage. Exchange stipulated margins, positions taken as NRML can be held until expiry, provided required margins maintained. Types of Orders:
Limit (LMT) order: Place buy or sell order at a predetermined price
Market (MKT) order: Place an order to be bought or sold at the best available price.
Stoploss or trigger orders (SL and SL-M): Stoploss if placing a predetermined loss booking order at a trigger price. Trigger if using this type of order to enter a fresh buy above the current market price or sell below the current market price when the trigger price is hit. SL if limit order to be sent when trigger is hit. SL-M if a market order to be sent when trigger is hit.
Advanced order types:Regular orders with time validity: Day orders for orders to be valid till end of day (selected by default).
IOC (Immediate or cancel) for orders to be cancelled if not filled completely immediately.
Bracket orders: Intraday limit orders (NSE, NSE F&O) with a target and stoploss and an optional trailing SL all placed simultaneously. Target, Stoploss, and Trailing SL all activated only once the original limit order executed. SL automatically cancelled if target is met and target automatically cancelled if SL is hit. Trailing SL which is optional trails the stoploss price or moves the SL price every time the scrip moves in a favourable direction by the trailing stoploss value mentioned.
Cover orders: Intraday market orders (NSE, NSE F&O, Currency, and MCX) with a predetermined stoploss order. Similar to bracket orders, higher leverage due to fixed stoploss and all positions auto-squared off before market close
AMO (After market orders): Place orders for the next trading day the previous day itself. AMO orders can be placed only during the following time duration – Equity – 3:45 PM to 8:59 AM Currency – 3:45 PM to 8:59 AM F&O – 3:45 PM to 9:10 AM MCX – Anytime during the day, if placed during the market hours the order will go through the next day.
You can trade in equity. In equity you have:
Cash Trading or Cash Market: In this buying or selling of securities is done by providing the capital needed to fund the transaction without relying on the use of margin. Cash trading is achieved using a cash account, which is a type of brokerage account that requires the investor to pay for securities within two days from when the purchase is made.
Derivative: It is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from shares or cash segment only.
We created this website to bring together all the tools and services you’ll need to start trading for real. If you want to start taking advantage of the markets now, without having to become an expert, our free trading signal. Whatever you’re looking for, you’ll find it with us. Here you’ll learn the basic terminology to be a successful Forex trader. To begin learning Forex, you’ll need to have a good grasp on the basic definitions, rules and terms used by professional traders. At first, this can sound daunting but after we spell out the fundamentals, it will become clearer and you’ll be on your way to becoming a Forex trader. We will cover terms, such as; base currency, the quote currency, micro lots, mini lots, standard lots, long position, short position, pips, spread, margin and many more. Someone who is using more than 10% of the whole equity into a trading session is probably not having a good money management strategy. Because you should always trade safe and also because the market may turn back on you and you would find yourself in a big margin problem. With good risk management, having 10% of your account invested can bring consistent returns with no problems.
Profit Rate :
Some traders can’t make 10% per year. Others can safely and consistently make 30% per month and they are not afraid to show their verified performance as a solid proof of what they offer. While taking into consideration a proper risk and money management, you should never aim to make millions in one week with a small account because that would probably mean hitting margin call. Just remember: a good strategy and analysis will always bring profits. And if at the end of the month you have only 1% profit, that means you don’t have -1% loss.
Choosing the Best Forex Broker :
In order to start trading Forex, you will need to find the right online Forex broker for you with the cash rebate program. It’s important to find the right Forex broker for your trading needs according to several important criteria, such as security, customer service, trading platform, transaction costs, live quotes and more. While reading our guide on how to choose the best FOREX BROKERS.
Forex for free :
Most Forex brokers offer many free options, services, tips and information to help you trade better. Real-time charts and news, help guides, and blogs help you understand and learn about the market in real time. There are also many “demo” accounts to try the market before putting in real money.
Why Trade Forex?
The Forex market is fast becoming the most attractive and popular market in the world. The traditional stock is no longer relevant and traders are moving fast into the Forex. We collected here a few reasons to show you why this is happening and what advantages the Forex market has to make is so popular. We choose to focus on a few very important advantages of the Forex trading and the reasons that people choose this market: forex is the largest financial market in the world. The daily volume of the Forex market is huge over $3 trillion per day. This makes the stability of the market very good compared to stock trading. The price in the Forex market is exactly what you see is what you get and you can follow it very easily. Forex trading simplifies everything, there’s no clearing fees, no exchange fees, no government fees, no brokerage fees, no middlemen. The elimination of the middlemen gets the traders closer to the actual trade and makes the traders responsible for their pricing. The brokers are usually paid through a service called “bid-ask spread”. The Forex market is open 24 hours a day. Opening on Monday morning (in Australia) and closing in the afternoon (in New York). This is great for traders that can trade all day long or in parts. You can choose the times that are convenient for your trading, day-night, when you eat or when you sleep, whenever you want. In Forex trading you can minimize the risk by depositing a small amount that will control a larger contract value. This is controlled by leverage and can make you profitable in the Forex market. If a broker gives 50 to 1 leverage it means that with $50 deposit you can buy or sell with $2500. If you put $500, you can trade with $25,000. All this needs to be done with great risk management because high leverage can easily lead to great loss, as well as great profit. The Forex market is huge and therefore also very liquid. This means that on every buys or sell that you make, there will be someone who will take the other side of the trade. You will never be grounded because there’s no one on the other side. To get started you would think that you need a lot of money. The reality is that online Forex brokers have “mini” and “micro” options and some of them have a minimum of only $25. This is great for Forex beginners because it makes the trading starting point easier. I’m not saying that you need to start with the minimum, but being cautious is never bad and starting small is good for the average trader. main trading company
Forex the best trading market :
You can easily predict the movements in the Forex market you have many repetitive patterns and it’s fairly easy to learn, recognize and analyze these movements. The prices tend to go up or down and return to the average. They stay for quite a long time up or down and this stability makes the Forex market a much easier market to follow. This gives the traders a huge advantage in controlling their trades much better than the disorder.
Risk Warning :
We always suggest our clients to carefully consider their investment objectives, level of experience, and risk appetite. try to money management with every trade. Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. FOREX IN WORLD takes no responsibility for loss incurred as a result of our trading signals. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts. FOREX TRADING IN INDIA: Forex means currency pair trading. Indian citizens can trade only currencies that have a pairing with INR. It is legal to trade with Indian Brokers providing access to Indian Exchanges(NSE, BSE, MCX-SX) providing access to Currency Derivatives. Since 2008, RBI and SEBI have permitted trading in currency derivatives. The currency pairs available for trading are USD-INR, EUR-INR, JPY-INR and GBP-INR.
The National Stock Exchange (NSE) and Multi Commodity Exchange of India (MCX) have held exploratory talks to combine their operations and provide a one-stop shop for trading in all kinds of products. Two people close to the development said that the two exchanges have appointed global investment banks to help in the discussions. NSE has appointed Morgan Stanley while JPMorgan is advising MCX, these people said. The merger, if and when it happens, will help create a bigger exchange with 60 per cent market share spanning everything from equity derivatives to commodity futures. Rather than setting up new segments by themselves, a merged entity offering all asset classes would be good for participants. For one, brokers will not have to maintain separate demat or trading accounts and margins to trade would be fungible, saving costs to broker and clients and contributing to higher volumes in a universal exchange. For example, an equity trader having margin in his account could deploy the same to trade in gold or crude oil futures on the commodity segment offered by the merged entity. Since trading in these commodities entails currency fluctuation risk, those could be hedged by selling rupee (against the dollar) on the currency derivatives segment of the said exchange. NSE already offers a liquid currency derivatives platform. The strengths of both exchanges makes such a merger expedient, according to industry experts. NSE offers the most liquid platform for trading shares in the cash market and derivatives on its futures and options platform. It also offers a liquid currency derivatives trading platform. MCX is the number one commodity bourse in the country, accounting for anywhere between 84 per cent and 90 per cent market share.
Market Live: Sensex trades strong, Nifty hits 9400 for the first time ever
A shorter version (reduced by 95.0%) can be found on IndiaSpeaks. This is an extended summary, original article can be found here
Market Live: Sensex trades strong, Nifty hits 9400 for the first time ever. 3:10 pm Market Check: Bullish momentum on the indices continued in the last trading hour as well, with the Nifty clocking an all-time high and a fresh milestone of 9400. 56, while the Nifty was up 86. The market breadth was narrow as 1,607 shares advanced against a decline of 1,188 shares, while 185 shares were unchanged. Meanwhile, Wipro, ICICI Bank and Tata Power lost the most. 2:30 pm Management Speak: Blue Star posted a decent set of earnings in Q4 with no fireworks but positives outweighed the negatives.. Margins were supported by a strong margin performance from the unitary cooling products segment. Midcaps gained nearly half a percent on the Nifty, while the FMCG index was up over 1. 04 points at 30192. 76% at 9387. Bharti Airtel and HUL continued to top the charts, while Wipro, TCS and UltraTech Cement lost the most. The airline reported a 24. 7 crore posted during the same period last year. The stock opened the day on a weak note and fell by over 2 percent but later zoomed 4. On the NSE, shares of the company jumped 4. Also Read:Not just Sensex but 47 stocks hit lifetime high on BSE; 150 stocks rose to 52-week high 1:30 pm IRDA nod to DHFL Gen insurance:Sources tell CNBC-TV18 that DHFL General Insurance, which is a wholly owned subsidiary of the mortgage firm DHFL is expected to receive final approval for its general insurance venture from Insurance Regulatory and Development Authority (IRDA) in the next 7-10 days. The 30-share Sensex was up 258. 20 points at 9385. Hindustan Unilever and Bharti Airtel were the top gainers, while Wipro, TCS and UltraTech Cement lost the most. The momentum was strong enough and took as much as 47 stocks to lifetime higher and over 150 stocks hit fresh 52-week highs. Stocks which rose to fresh 52-week highs include names like Gillette, Siemens, Century Textiles, Kotak Mahindra Bank, Reliance Capital, Escorts, Havells India, Voltas, Coromandel, Chennai Petro, EID Parry, KEI Industries etc. The Sensex was up 239. 15 points at 9380. Midcaps, banks, and metals gained over half a percent on the Nifty, while the IT index was down by half a percent. 6 percent intraday Wednesday on strong Q4 numbers and bonus declaration. 8 crore against Rs 397. It has also declared issue of bonus share in the ratio of 1:1 and has also approved increase of authorised share capital of the company from Rs 1200 crore to Rs 3000 crore subject to the approval of shareholders of the company. 94 points at 30200. 55. Midcaps gained almost a percent, while metals and banks gained around half percent. 7 crore, according to CNBC-TV18 estimates. Mutual funds Equity and ELSS (Equity Link Savings Scheme) schemes saw aggregate net inflows of Rs 9,400 crore (US$ 1. The trend is also interesting in the context of relatively lean seasonality for the April to June quarter. 1 bn is at a historic high and the first billion-dollar-plus monthly inflow into balanced funds, said the note. The Nifty surpassed its all-time high mark of 9,377. 94 points at 30172. 60. Also Read:For return-hungry investors in India, Warren Buffetts advice on index funds might not work; heres why 9:55 am Record high: Nifty is now at a new all-time record high. 4 crore for the fourth quarter ended March 2017. Morgan Stanley maintains an underweight rating on Bharti Airtel with a 12-month target price of Rs 280. The US drug regulator issued eight observations to the unit, which was inspected from March 27 to April 7, 2017, according to a CNBC-TV18 report. The Bank Nifty and midcap index were up around half a percent. 29, while the Nifty up 25. The market breadth was very healthy as 399 shares advanced against a decline of 97 shares, while 35 shares were unchanged. The currency markets are shut today on account of Buddh Purnima. The hope that US President Donald Trump will cut corporate and personal taxes remained in focus for investors. 1 percent of the vote, according to Reuters. FBI Director James Comey was fired by U.S.
TYPES OF MARGINS IN CURRENCY TRADING. The Clearing Corporations of the NSE and the BSE have developed a comprehensive risk containment mechanism for the Currency derivatives segment. The most critical component of a risk containment mechanism is the online position monitoring and margining system. Trading USDINR option contract is a part of the currency exchange options trading. In this tutorial with FX options, we are about to share 4 basic types of currency options trade, along with credit spreads. Options is a type of derivative where you can earn a higher profit with lower risk, depending on your options trading strategy. The article describes the meaning and definition of the NSE and BSE in India. Get detailed information on two primary stock exchanges in the share market at Angel Broking. Currency margin calculator helps you calculate margin against your portfolio for FOREX trading. Online currency trading is easy in India, if you have the right tools. Trade Smart is dedicated towards bringing in all the trading tools needed by a smart trader. NSE Clearing collects initial margin up-front for all the open positions of a CM based on the margins computed by NSE Clearing-SPAN ®. A CM is in turn required to collect the initial margin from the TMs and his respective clients.
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