I am new to derivatives market. Say for example we have got icicibank. There exists three future contract in equity futures. ICICIBANK DEC FUT , JAN FUT , FEB FUT. Out of these three what future contract should i take for achieving short term profit?. Is Feb futures more active in trade than Dec futures. Since these three has got same direction / trend in price. What do you think about trading strategies?
As a general rule of thumb, near month contracts i.e DEC Fut in your example will have the most liquidity. The far month contracts are illiquid. Its risky to trade intraday in them or trade without some form of hedging.
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A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset or set of assets. Common underlying instruments include bonds, commodities, currencies, interest rates, market indexes and stocks.
How short is your short term? The contract you should trade depends on the time period you are betting on, and the liquidity of the contract.
For example, if you want to trade intraday, you should always trade the nearest month contract, i.e., Dec. in this case, because it will be the most liquid one. And there is actually no need to take JAN or FEB contract because you are going tgo square it off on the same day.
But suppose, you want to hold this trade till the February, then definitely you can look for the FEB month futures.
Short term trade here signifies intraday. Shall I use NRML to trade derivatives and square off same day( intraday) ?
You can use either NRML or MIS mode to trade in derivatives. NRML mode gives you the flexibility to carry forward the position. MIS mode require lesser margin, but you have to square it off compulsorily at the same day, or convert the position to NRML mode, otherwise it will automatically get squared off.