Tuesday, 3 December 2019

Unit 9: Trading Futures and Option

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                                     Unit 9: Trading Futures and Option    

Futures are useful to the market participants only if futures prices reflect information about the prices of the underlying assets.

The futures & options trading system of NSE, called NEAT-F&O trading system, provides a fully automated screen-based trading for Nifty futures & options and stock futures & options on a nationwide basis as well as an online monitoring and surveillance mechanism.

There are four parties/entities in the trading system.

They are Trading members, clearing members, professional clearing members and participants.

The market would not be possible without the participation of traders, or speculators, who provide a fluid market of buyers and sellers.

A scalper trades in and out of the market many times during the day, hoping to make a small profit on a heavy volume of trades.

A day trader is similar to a scalper in that he or she also typically does not hold positions overnight and is an active trader during the trading day.

A position trader might make one trading decision and then hold that position for days, weeks or months.

In the F&O trading software, a trading member has the facility of defining a hierarchy amongst users of the system.

This hierarchy comprises corporate manager, branch manager, dealer and admin.

Clearing member corporate manager can view outstanding orders, previous trades and net position of his client trading members by putting the TM ID (Trading member identification) and leaving the branch ID and dealer ID blank.

Trading member branch manager can view outstanding requests and activity log for requests entered by him by entering his own branch and user IDs.

This is his default screen.


Day order: A day order, as the name suggests is an order which is valid for the day on which it is entered.

Day Traders: A day trader is similar to a scalper in that he or she also typically does not hold positions overnight and is an active trader during the trading day.

Immediate or Cancel (IOC): An IOC order allows the user to buy or sell a contract as soon as the order is released into the system, failing which the order is cancelled from the system.

Leverage: Leverage is the ability of a trader to control large dollar amounts of a commodity with a comparatively small amount of capital.

Market Makers: Market makers give liquidity to the market, constantly providing both a bid (expression to buy) and an offer (expression to sell).

Market Price: Market orders are orders for which no price is specified at the time the order is entered (i.e.
price is market price).

Market Risk: Market risk is the possibility that the value of the derivative will change.

Market Watch Window: The market watch window is the third window from the top of the screen which is always visible to the user.


NEAT-F&O Trading System: The futures & options trading system of NSE are called Notes NEAT-F&O trading system.

Participants: A participants is a client of trading members like it financial institutions.

Scalpers: A scalper trades in and out of the market many times during the day, hoping to make a small profit on a heavy volume of trades.

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