eg: buy 2 lots niftyfutsept @ 8000 with one broker and sell 2 lots niftyfutsept @8000 with another broker(i’ve trading accounts with 2 brokers).(same quantity and same underlying.other possibilities are taking positions in a friend’s trading account etc)
now i know tht this wud effectively nullify and cancel each other and it wud be no different from not participating in the markets at all. however there are some reasons i want do this.
eg:am usually doing everything intraday and in order to protect from gap risk the next day, an opposite position taken towards the end of the day cud be used to hedge
this is just one of my reasons. other reasons are kind of complicated so its a bit lengthy to put it here…
options can be used to hedge but american type options are more suitable for this and its not available in india currently. its possible to do it with european ones but is a lot of work
what is trouble is if the buyer/seller is the same entity, it then becomes circular trading and your brokers will most likely get a notice from the exchange asking for an explanation.
Many people are holding Long Stock futures position for long time. They simply are like investors, but not interested in holding position in cash. Instead, they have opted for Long futures and are rolling over their Long Stock futures every month.
For such semi-trader /semi- investors, they face times when stock can move lower and give up the gains. For hedging to protect against overnight / shortterm MTM losses, such a trader can short the NEXT month stock futures contract. This will create a “Long CURRENT month future + Short NEXT month future” position. Once the downside risk has subsided, the NEXT month short future contract is removed, and the Long current month future contract keeps moving up.
The above case is for a Bull market. Reverse can be done for a Bear Market.
Agreed, I almost forgot about it. The chances are high especially if the trading is done on OTM options. If it comes under SEBI’s notice the account can be frozen for as minimum as 45 days.
thnks nithin, and what if a different exchange is used like mcx-sx. eg: buy sbifut in nse and sell sbifut on mcx-sx
i mean its common practice to sell gold at one exchange and buy it at another exchange. arbitrageurs do this almost all the time, right?..(.if its okay to bet on the spread narrowing down or widening apart, its difficult to draw a line between spread trading and circular trading)
That becomes an arbitrage and there is no issues with it. But if you do it on the same exchange and if you end up buying and selling to yourself, could mean trouble.