Suppose I have 10 lakhs in my trading account, out of which I Invested 9 Lakhs in various stocks for long term. And out of remaining 1 Lakh I used around 80,000 to buy a futures contract of a company say COLPAL. Now my question is if COLPAL goes through something like SATYAM and drastically drops to 10% of its values overnight, how will it affect my Account. Will my Long Term shares be in any sort of trouble? What will be my brokers actions ?
If the company going rouge is a large corporation (like Satyam , back in the days), then it will send ripples across the market and the sentiment turns negative…therefore your long term holdings may come down on such a day. But eventually, they should bounce back (assuming none of them are related to the rouge company).
The futures position will go for a toss, if you dont have any additional cash in your trading account, the broker will most likely close this.
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Thanks for the answer… I want to know if the broker will liquidate my stock positions to cover the losses caused by my futures position. Because in SATYAM like situation broker might not have a chance to close the future position in time. & It may cause some loss at his end.
Yes, this is a systematic risk, especially in situations where a stock falls rapidly.