Why future and options trading is risky and beginners are not advised to trade in it , if you don’t follow proper rules, If you don’t have proper knowledge about future and option trading then, it can ruined your all capital . People trade into future because they only  need a margin to take their position,  but they don’t realize  that their one wrong trade can clear  their all capital, after loosing their all capital they can not take any trade.

Future and Option trading example

Lets’s  elaborate it with an example, suppose  we choose a stock  A and its current market price is 345  and its lots size is 1700 means its one lot have 1700 stocks,  now to take a position we need to buy at least one lot, so if we buy it in cash then we need to pay 1700 * 345 = 586000 rupees

but if we take one lot of future then we only need to pay it margin which is 73554 rupees  if we want to hold for positionally and only 36777 rupees  if we take it only for intraday, but some people use cover and bracket order then they only need to pay around 22000, so here you  can check how much it make differences, that attracts  a large number of new traders to take position in future.

Now we understand the most risky part of it, suppose  a trader come in market  with a small capital of 25000 ruppes, and he take a position in Stock A for one lot at price 345 and stock goes  around 3%  rally that is about 10 rupees, so he got a profit of 1700 * 10 = 17000 that is about 68% of their capital and in investing we expect generally 20% in a year , so here you can check in one day we he generates  how much, but next the most dangerous part of it if for any reason stock goes down and he get and loss of 3% then he get 17000 loss , so here  his remaining capital is 25000- 17000 = 8000 rupees,  with this  capital now he can not take his next trade.

So here we can check with above example  how risky is future,  so its not advisable to trade into future for new traders,  always trade with sufficient balance, and don’t use too much of leverage, and never do overtrading.  Always trade  in a liquid stock, don’t trade in a stock when its highly volatile  specially at result time, and most important thing always use a proper and strict  stop loss.