Futures trading involves entering into a contract to buy or sell an asset at a predetermined price on a specified future date. This form of trading is popular among investors due to its potential for high returns and the ability to hedge against market fluctuations. With Zerodha’s innovative platform, traders can easily access the futures market. This article will walk you through the steps to start trading futures on Zerodha, including account setup, basic concepts, platform usage, strategies, risk management, and fees.
Account Setup and Activation
How to Open an Account on the Zerodha Platform
Visit the Zerodha Website: Start by navigating to the Zerodha website.
Sign Up: Click on the “Sign Up” button. You will be prompted to enter your mobile number and email address.
Fill Out the Application Form: After verifying your mobile number, fill out the online application form with your personal details.
Upload Required Documents: You will need to upload KYC documents, including:
- PAN Card
- Aadhaar Card
- Address Proof (utility bill, passport, etc.)
- Bank Statement
E-Sign Your Application: Use your Aadhaar number to e-sign the application for quick verification.
Submit Your Application: After filling out and reviewing all details, submit your application.
Receive Your Client ID and Password: Once your application is processed (which can take a few hours to a couple of days), you will receive your unique client ID and password via email.
How to Activate Futures and Options Trading Functions
Log into Your Zerodha Account: Use your client ID and password to log in.
Navigate to the ‘Account Settings’: Find the ‘Profile’ section and select ‘Manage Portfolio.’
Enable Futures and Options Trading: Look for the option to enable futures and options trading and follow the prompts to activate these features.
Complete Additional Verification: You may need to provide additional information or documents for verification.
Review Terms and Conditions: Read and accept the terms and conditions related to futures trading.
Basic Knowledge
Basic Concepts and Terminology of Futures Trading
Understanding key concepts and terminology is crucial for successful futures trading:
Futures Contract: A standardized agreement to buy or sell an asset at a specific price on a future date.
Underlying Asset: The asset (commodity, currency, stock, etc.) that the futures contract is based on.
Leverage: Using borrowed funds to increase potential returns.
Margin: The amount of money required to open and maintain a futures position.
Expiration Date: The date on which the futures contract expires.
Types and Characteristics of Futures Contracts
Futures contracts can vary based on the underlying asset. Common types include:
Commodity Futures: Contracts for physical goods like oil, gold, or agricultural products.
Financial Futures: Contracts based on financial instruments such as stock indices or currencies.
Currency Futures: Contracts to buy or sell a specific currency at a future date.
Each type has its own characteristics regarding risk, leverage, and market behavior.
Trading Platform Usage Guide
How to Use Zerodha’s Kite Platform for Futures Trading
Zerodha’s Kite platform is intuitive and packed with features for futures trading:
Logging In: Use your client ID and password to access the Kite platform.
Understanding the Dashboard: Familiarize yourself with the main dashboard, which includes your watchlist, market depth, and charting tools.
Using Charts: Utilize the charting tools to analyze price movements and trends of the futures contracts you are interested in.
How to Add Futures Contracts to the Market Watch List
Search for Futures Contracts: Use the search bar to find specific futures contracts by entering the asset name or symbol.
Add to Watchlist: Click on the “+” icon next to the futures contract to add it to your watchlist for easy access.
Organize Your Watchlist: You can create multiple watchlists to categorize your futures contracts based on your trading strategy.
How to Place, Modify, and Cancel Orders
Placing Orders: Click on the desired futures contract in your watchlist. Select the order type (market, limit, etc.), enter the quantity, and click ‘Buy’ or ‘Sell.’
Modifying Orders: Navigate to the ‘Orders’ section, select the order you want to modify, and make the necessary adjustments.
Cancelling Orders: To cancel an order, go to the ‘Orders’ section, select the order, and click ‘Cancel.’
See also: 7 Things To Know Before Trading Futures On Kucoin
Trading Strategies
Common Futures Trading Strategies
Understanding different trading strategies can enhance your trading effectiveness:
Hedging: Protecting your investments against adverse price movements by taking an opposite position in the futures market.
Arbitrage: Taking advantage of price discrepancies between different markets to make a profit.
Speculation: Buying and selling futures contracts with the hope of making a profit based on price movements.
How to Use Technical Analysis and Fundamental Analysis
Technical Analysis: Analyze historical price data and market trends using charts and indicators to forecast future price movements.
Fundamental Analysis: Evaluate economic indicators, company performance, and other factors that can influence the price of the underlying asset.
Risk Management
How to Set Stop Loss and Take Profit
Setting Stop Loss: Determine a price level where you will exit a losing position to limit your losses. This is crucial for managing risk.
Take Profit Orders: Set a price at which you will automatically sell a position to secure profits.
How to Manage Trading Risk and Money Management
Diversify Your Portfolio: Avoid putting all your capital into one asset. Spread your investments across different futures contracts.
Use Proper Position Sizing: Determine the appropriate size of your positions based on your overall portfolio and risk tolerance.
Fees and Margin Requirements
The Fee Structure of Trading Futures
Zerodha’s fee structure is competitive. Here are some key points:
Brokerage Fees: Zerodha charges a flat fee per trade for futures, typically around ₹20 or 0.03% (whichever is lower).
Other Charges: Be aware of additional charges such as GST, SEBI fees, and exchange fees.
Margin Requirements and How to Calculate Margin
Understanding Margin: Margin is the amount of capital you need to open a futures position. It can vary based on the asset and market conditions.
Calculating Margin: The margin requirement is typically a percentage of the total contract value. For example, if a futures contract is worth ₹1,00,000 and the margin requirement is 5%, you will need ₹5,000 to open the position.
Practical Tips
Stay Informed: Keep up with market news and updates to make informed trading decisions.
Start Small: If you’re new to futures trading, consider starting with a smaller amount to minimize risk.
Review Your Trades: Regularly analyze your trades to learn from your successes and mistakes.
Conclusion
Trading futures on Zerodha can be a rewarding experience if approached with the right knowledge and strategies. By setting up your account properly, understanding the platform, and employing effective trading strategies, you can navigate the futures market confidently. Always remember to manage your risks and stay informed about market conditions to maximize your trading potential. Happy trading!
Frequently Asked Questions in Trading
1.What is the minimum capital required to trade futures on Zerodha?
The minimum capital depends on the margin requirements of the contracts you wish to trade.
2.Can I trade futures on the mobile app?
Yes, Zerodha offers a mobile app for trading futures, allowing you to trade on the go.
Related topic:
Can You Make Money By Trading Futures?