What is the real use of futures and options apart from hedging

General
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Is it just gambling that futures and options exists ? Equity means we can hold it as assets , but whats the use of futures and options , and especially banknifty and nifty options , that too weekly ? Is it pure gambling stuffs for big operators to earn money from retailers ?

2

If you are buying a stock with an intention to sell - you are trading, if you don’t have an intent to sell - it is investing. Similar to how you buy a house to live in, which you never plan to sell unless something unusual happens.

If you are trading, there is a speculation angle to it. So if you are speculating, shouldn’t you have an opportunity to short as well? That is, allow people to trade with a view that stock price will go down? In India, it is possible to take that view only by using F&O. If there was a vibrant stock lending and borrowing mechanism, maybe F&O wouldn’t be as active as it is today.

So yeah, hedging, arbitrage, and speculating/trading. :slight_smile:

Weekly contracts, hmm… :slight_smile:

Btw one thing I try to keep clarifying, if you are trading index - there isn’t really big operator stuff happening. It might be happening in stocks. With compulsory delivery of option contracts, even on stocks, if there are operators will have trouble operating.

Also the biggest edge a retail trader has is of being small. He can get in and get out anytime he wants. Imagine you are a big operator with thousands of lots open position and market goes against you. In a not very deep market like India, you could get cleaned out of a lot of money just in one trade, just trying to exit a position.

11 Likes
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One more definition of trading & investing…

When we deal with contracts, I mean buying & selling of contracts with definite time limit is called trading (time limit of the contract may be 1 day or even 1 month or 3 months). When we buy an asset (long only) which we can keep in our Demat A/c without any time limit is called investing. Even though you sold your shares from your Demat A/c after 1 week, it was investing.

So true!! Lots of operators from medium to large get cleaned out from the system from time to time. Not only they face absolute bankruptcy, but also face huge debt. One famous example from the past is Jesse Livermore who was in 5 Million debt when he died.