Frontpage Insights: Futures trading is more risky as it is not possible to accurately predict the future price of any shares

Lure drives the market. It is necessary to some extent for trading in shares. But when temptation crosses the line, traders turn to the futures market. Like a gambler, he feels that the next trade after a continuous loss will prove to be profitable for him. Even if there is no good opportunity in the market at that time. Clearly this can prove to be a big mistake. But people are not coming out of it. In March 2019, there were 3.5 crore demat accounts in the country. In June 2024, its number has increased four times to 16.2 crore. During the financial year 2023-24, 78 lakh derivatives traders in the country lost Rs 52,000 crore in futures and options (futures) trading. This situation is not only in India. More than 97% of options worldwide become idle. This is the biggest cause of loss. Vinay Pahadia, Chief Investment Officer, PGIM India Mutual Fund Futures Trading: Profit during a rally in stocks Suppose you take a futures contract to buy 100 shares of Company X at Rs 50 per share. As the deal was futures, as a result, even if the share reaches Rs 60 by the specified date, the price will remain Rs 50 for you. Meanwhile you will make a profit of Rs 1,000. But if the share comes to the price of Rs 40 then you have to bear the same amount of loss. This means that the futures contract is profitable only when the price of the shares increases in the future. Five Reasons Most Futures Traders Lose 1. Uncertainty and Risk: Just as the outcome of casino slot machines depends entirely on chance, the futures and options market is risky and volatile. It fluctuates in price due to various reasons. On which the investors have no control. 2. Big Profits, Big Losses: Traders are attracted by the prospect of big profits due to a fall or rise in the price of shares in the future. Especially the lure of higher profits at lower costs motivates them to trade in F&O. But the price estimate turns out to be wrong. 3. Psychological effect of temptation: Futures and options trading makes traders feel psychologically like a gambler. Option Trading: Profit on falling stock price Options are of two types. Call and put. In a call, the buyer has an option to buy or sell the stock at a specified date and price in the future. The seller has the same option in a put. Suppose you take a future contract of 100 shares of a company at a strike of Rs 50. X share fell to Rs 40 on the day of expiry of this contract. Meanwhile you have an option not to buy the shares at Rs 50. But margin money (like 10 rupees per share) will be lost.

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