Investing in stock futures for long term

[dharmishtha_patel]

@Vij

Why would you think its impossible?

I think in long run, it may not be a profitable strategy due to the fact that, you continuously have to exit and take re-entry at the end of every expiry, which involves realizing losses specially in range bound market where market goes up in one expiry then comes down in another and then goes up. In addition to that, you constantly will be exposed to the higher risk of losing on cost of roll over including taxes, charges and brokerages.

[nithin]

@dharmishtha_patel

How effective or practical is it to invest in stock futures or nifty futures for long term? do you even get profits in long run, even after rolling? lol

I think, investing in futures can be dangerous strategy.

@nithin is it even possible?

@dharmishtha_patel

I think in long run, it may not be a profitable strategy due to the fact that, you continuously have to exit and take re-entry at the end of every expiry, which involves realizing losses specially in range bound market where market goes up in one expiry then comes down in another and then goes up. In addition to that, you constantly will be exposed to the higher risk of losing on cost of roll over including taxes, charges and brokerages.

Nifty futures usually have liquidity in the far month, so you could definitely buy it and then roll over. So 4 times a year. This way the rolling over costs will be much lesser than doing it monthly.

Rolling over every month will eat up a significant portion of the upside unless of course the market trends by a huge margin in the direction of your trade. Very tough to do this with stock futures.

Also futures price = Spot + cost of carrying. So there is an interest component involved here as well. Over the longer run, you will not only have to recover rolling over costs but also this cost of carry to be in the money.

The Futures Pricing – Varsity by Zerodha

[dharmishtha_patel]

@nithin

So 4 times a year. This way the rolling over costs will be much lesser than doing it monthly.

@nithin
Do you think that people are dong this actively? i mean in a range bound market wouldn’t it be giving losses?

[Vij]

@dharmishtha_patel

i mean in a range bound market wouldn’t it be giving losses?

Obviously, unless there is clear support and resistance that you are able to time . If there is certainty, there would be no trade. One must keep exposure manageable and take a call on direction (or not). The cost of carry is the cost of doing business, if you are right, your leverage will make it all worth it - and if you are wrong, its going to hurt.

[nithin]

@dharmishtha_patel

@nithin
Do you think that people are dong this actively? i mean in a range bound market wouldn’t it be giving losses?

If someone has a view for the next few years, Futures isn’t really the best way to do this. But I am sure there are folks who keep rolling over for long periods of time.

[Vij]

@nithin

If someone has a view for the next few years

Ah yes.
For me futures is for period of less than a year. Can continue rolling further after booking profits majorly perhaps .

[VishnuUpalekar]

I think investing in leverage will only invite more risk. Make an investment where you do not lose more than you’re supposed to. You do not want to reduce the capital coming your way. Instead, read up or take a course to understand hedging better. It may take a while to learn but if you’re passionate, it helps. Good luck!