Derivatives: Futures Trading Techniques

Let us start with some basic trading techniques in futures because futures behave just like stocks and therefore are easier to understand. 

Futures Trading Technique

• Long position:

 If you think that the stock or index (e.g. Nifty) price will rise before the expiry of the futures contract, you may buy the futures of the stock or index (e.g. Nifty). This is also known as taking a long position. You will make a profit or loss on a real time basis, depending on the price movement of the stock / future and the profit / loss will be credited / debited from your margin. 

You can settle your position at any point of time and book profit / loss before the expiry by squaring off. Squaring off is taking an opposite position in the same derivatives contract; for example, if you bought December futures of a stock or Nifty (long position), you can square off, simply by selling the December futures of the same stock or Nifty. If you do not square-off before expiry, your position will be automatically squared off on expiry and profit / loss credited / debited to your margin. Taking a long position is no different from buying a stock, the two differences being that, you have to book profit / loss by expiry and that, you can take much bigger position in futures with a smaller amount of capital compared to stocks (spot market).