Hello everyone, this blog is specifically written to novice traders who have opened their D-mat accounts in this year due to lockdown to seek some additional income. If you are new to the markets and has been trading recklessly, do read completely as it will benefit you in some points.
Lockdown traders are nothing but those who started trading in lockdown. In that period, 9 to 5 job workers had to work from home but unfortunately many people had to face forced suspension from their job and had to look for other opportunities to earn their bread and butter. And it was a time when markets were also crashed severely, and bounced back to make new highs in short period as well. Huge MTM screenshots were floating over social media that time. And that was enough to attract newbies to the markets.
Many people thought, it must be easy to trade and earn big. But it’s easy to swim with the flow as you don’t have to put any efforts, because water takes you with it without you doing anything. And that’s when many inexperienced people made money as well. But they forgot that there was a strong buying force behind their stocks to fly high. It wasn’t their stock picking skill that made them money.
Come to the time after the dust settled, some people were smart enough to book or hold their investments in strong value stocks. But some people were extra smart, they became greedy and started trading in Futures & Options!! It goes without saying that they blew their accounts in a short period. Some might have even got margin calls. Trading is not that easy, making money in directional markets is easy, but markets aren’t always trending and 70% of the time are sideways. It takes high level skills and experience to trade in sideways markets. That’s why 95% traders fail in this business.
CASH MARKET OVER F&O:
Cash markets means equity markets. It has many perks over F&O. And the biggest one is no leverage. F&O markets are based on leverage. Leverage is a double-edged sword. It can make you rich but same time it can make you broke as well. In today’s time, trading futures and selling options are hot topic in the stock market due to weekly expiries on indexes. I won’t go in details of terminology as you can find it easily on internet. 90% options expire worthless on every expiry and an option seller takes a benefit of that by selling them in turn which he receives premium. It’s not as simple as it sounds. Options selling is a high-level game, you need to understand the market thoroughly. Also, capital is a major concern in this. Minimum 5-10 lakh capital is necessary to start trading in F&O segment. And it will take even more capital when new margin rules will start rolling after December 2020. So, not many people are privileged to arrange and afford such kind of money. That’s why equity markets are way more beneficial to start with. And trust me, if you have patience, you will fall in love with equities, once you master the skills. All you need to learn one setup/strategy and you are good to go.
Like snakes and ladders game, F&O are snakes & Equities are ladders here. One mistake in F&O trading, and you’ll end up back to square one, where equities will act as ladders and will take you to new highs provided you trade them with good risk:reward ratios. In option selling, risk:reward is negative and that’s why it takes much skills to come out of it profitably. Equity trading doesn’t ask for leverage, all you need is decent capital to start with. You can start with as low as Rs. 10,000/-. Once you get a hang of it, scale up and grow your capital. Always start small. And starting small is not a choice in F&O trading. In options buying you can start small, but again, it takes even more skill than option selling to make money in options buying. I’m not discouraging you about derivatives trading. If you have that passion, have patience then give it a try. But be ready to see heavy fluctuation in your profit & loss accounts until you become consistent. Because the journey to become successful in derivatives trading is make or break one. You either come out of it successful, or you go completely broke. Even we prefer equities for our day trading. You can see it on our social media platforms.