Futures and Options are all about hedging the risk while maximizing returns. However, there are a variety of trading strategies available that can allow a trader to benefit from the flexibility and power of F&O trading. You can learn futures and option trading strategies with little effort and apply them effectively and safely to your trades.
Before we get into the simplest F&O trading strategies, let us understand why you should choose to trade F&O online.
Why Choose Online Future Trading & Options Trading?
Futures and Options are derivative contracts that vary in value depending on the price of the underlying asset. This asset can be stocks, commodities, currencies etc. Thus, tracking the price movements of underlying assets is key to successful F&O trades.
Online trading of derivatives helps you screen the live price of the asset and thus enables you to trade efficiently. With access to futures and option chains and real-time trading, online F&O trading is packed with the potential for generating returns.
Let us talk about some simple F&O trading strategies that can help you unlock the full potential of futures and options trading.
5 Simplest Futures and Options Trading Strategies
Here are the 5 simplest futures and option trading strategies you need to learn.
- Choose an Underlying Asset Based On Risk Profile
The first step for F&O trading is to decide on your underlying asset based on your risk profile. For example, online future trading and options trading cannot be traded on all stocks and the risk for large-cap stocks is lower compared to penny stocks as given less volatility.
F&O can be traded only on eligible stocks. Check the list of eligible stocks on the NSE and BSE websites before diving in. This should also be based on your risk profile.
- Know Your Margin & Leverage
Margin money is a requirement in both futures and options. Margin in futures trading refers to the amount paid to secure a futures position while it is still open. On the other hand, the margin in options means a token amount paid by the trader to the broker before writing or selling options. Leverage in F&O gives traders the ability to control a bigger contract value with limited capital.
The amount of margin and leverage decides your profit and loss to a considerable extent. Thus, you must be cautious with leverage and margin while trading both futures and options and choose the most optimal options as a part of your F&P planning.
- Minimize the Cost
Understanding the cost involved in F&O trading is essential to ascertain your actual return on investment and minimize cost. While the transaction fee, brokerage and other included costs might seem lower in percentage, they might add up due to constant trades.
Thus, F&O traders must know the exact cost they incur on individual trades and choose a broker that enhances their trade efficiency with lower charges.
- Don’t Forget to Use Stop Loss
Stop loss is a must to include in your strategy to limit your losses while trading F&O. Stop loss is a buy/sell order that automatically executes if the price of a future or options contract moves against the trader’s expectations.
For example, if you own an option contract of Rs 1000 and you expect it to fall to Rs 500, you can place a stop loss order on Rs 950 to sell the contract as it reaches Rs 950 and limit your losses. Kindly note that this was just an illustration.
- Practice Using Demo Trade
Demo trading can be a great way to kickstart your F&O trading. Before involving real money, some web trading platforms allow you to demo trade in real-life market conditions. You can try your hand at futures and options trading without risking real money with demo trading.
This strategy of practicing your trades helps you master F&O trading over time and gives you the confidence to trade in the real market.
Conclusion
F&O trading can be a great way to profit from the price movement of an underlying asset. However, you must know these simple trading strategies to limit your losses and potentially increase your profit. Choose a futuristic trading platform like Dhan for F&O effortlessly.
