I am new to this Futures trading, need your thoughts on my below understanding.
I feel by doing futures trading we are not into big loss until and unless we have patience to achieve our target. Please consider this worst case scenario:
Today Future Price of HDFCBank is 850 Rs. If I buy 1 lot (550 stocks) of July 2020 expiry HDFCBank so total margin fund to be in my account is : Rs: 1,20,217 but I have deposited some extra and total Fund now in my account is 5 lakh.
Now Suddenly due to 2nd Covid wave, prices of all stocks reached 52w low in June , now say HDFC bank reached to just 100rs ( worst case scenario) , now total loss in my account is 750rs per share which amounts to 750 * 550 = 4lakh 12 thousand in loss and my balance in deposit now comes down to just 88,000 from 5 lakhs in June 2020.
Suppose if this continues and price of HDFCBank stays around 100rs for another 4-5 months , then I will rollover and buy the next 3 months lot and since HDFC Bank price is 100rs per share , I can buy this 1 lot with the available 80,000 margin easily.
Now this will continue for atleast say 1-2 years , I will do roll over again and again. with the same balance amount without necessity of adding more amount .
Now some day after 2 years , HDFCbank and all shares rejuvenates because of economic development , then defntly it will slowly move back to its original 800-900 rs price and my rollover is continuing and my fund position is still 5 lakhs. So that means I have completely recovered back my loss amount and now complete 5 lakhs fund is back after 2 years , hence the risk of losing with respect to HDFCBank was approximately only 2 years which is only time loss and not the money loss.
Is my understanding here correct ? M i missing something here ? Is Future trading is all about patience and our money will be back even after we incur huge loss in the initial days and money is safe once economic slowdown/recession is over? Till then we can rollover the future trading with the same amount of fund in my account ? Please help me to understand this kind of scenario. I am just trying to understand the level of risk here.
Hypothetically speaking everything sounds easy but when we start seeing the numbers fluctuate for real all rationality goes for toss.
Why not just purchase a PE option if you’re so worried about sharp down move?
What you’re talking about is called investing.
Roll over like that is only done for short positions …
@Suraj_D_V you are creating inception, a dream within a dream.
You are talking about a trade which never has a Stop loss, because you are certain that one day, one fine day, your target will be reached. I know, where you are coming from. Loss is only when we exit the position running in a loss.
But the question is, Do you know when that target will come? Will you be able correctly timed the market? We never knew covid 19 would come. Will you be able to remain calm and sane all throughout.
Money ll be the least in your mind after years in market. You ld wish to trade something that you have a certain control in this chaos call “D MARKET.”
The idea of yours can be shattered by this quote,
" Markets can remain irrational for longer than you can remain solvent" – John Maynard Keynes.
The reason you are asking here is you are not sure if it ld work, else you ld have tried that somehow.
I get bit dramatic. Don’t mind, just get the gist.