Things to know before you start trading Nifty Future And Options
You have decided to start trading nifty future and option market. Once the decision is taken then the next step is to execute it. As a beginner you may not have all the information handy. Here I will share my suggestions which I learned from my own experience.
Select Account type
Before start trading nifty future or option the first step is to select the right trading account. You can open trading and D mat account with any broker in India. Let,s what are these accounts,
- Trading : It is the account using which you will be purchasing and selling shares, contracts,commodities et. You should have enough balance in your trading account to do the transactions.
- D-Mat : It is the account that holds all your shares in electronic or materialized form. Before the electronic exchanges came in existence, the shares were delivered to you in papers. D-at Account helps you to reduce the transaction time instead of the investor taking physical possession of certificates.
Difference between trading and D mat Account
As mentioned in the definition the trading account is used for executing trades. There are n number of stocks, index and their derivatives are available both on BSE & NSE. You need to transfer fund from your bank account to trading account before starting any trade.
Your next step is to decide which stock you would like to buy. You can select the stock using the trading app provided by your broker. Once you select your stock or index you can provide the number of shares you want to buy. Your broker will send your order to the exchange. Once the order is executed by the exchange, your trading account will be debited with the amount for purchase. Now you have completed your first trade.
Even though you have bought X number of shares, it will not reflect either in your D-mat account or in your trading account. The reason is , in Indian and other exchanges the credit of securities are done on T+2 day basis. Here T represent the day of transaction. That means, the securities will reflect in your D-mat account on the third day of your purchase. Please note on the third day the shares credited to your D-mat account. not to your trading account. You can hold those securities in your D-mat account and any time you can place a sell order to book profits. Then the shares will be removed from D-mat account and sold out using your trading account. You will receive the cash credited back to your trading account which you can withdraw to your banking account any time.
To conclude, D mat is like a bank account where you keep securities instead of cash. Trading account is the one using which you will do transaction. If you have a plan to start trading nifty future or options, you must have a trading account in place.
Select a Broker
The great mistakes that every beginner does is selecting the wrong broker. You need to be clear on your goals. Decide your aim whether it is pure investing or you want to try trading skill in derivative market.
Ther are two types of brokers available in india.
- Full service broker
- Discount broker
Who is full service broker ? there are blockers who will offer 3 in 1 accounts. Examples ICICI direct, HDFC, IDBI, Kotak securities etc. Discount brokers will provide you discount in transaction cost but most of them will not offer you a savings accounts. It is your responsibility to transfer funds from your savings account to trading account using NEFT or cheque. Some times it takes time to credit the balance from a third party bank account to your trading account . But now a days the banking are online and you will not face much issue in this case.
If you are a pure investor and don’t do frequent transactions then only I suggest you to open a Dmat and trading account with a full service broker. If you want to be an active trader, then never go for big brokers. Their brokerage plans are high and you will end up paying brokerage for the whole year and not made much profits. So as a beginner I advice you to start with discount broker like Zerodha. I also made the same mistake by opening an ICICI direct account first. Now I am using Zerodha for last 3 years and I am happy with their brokerage plan.
If you wish to open an account with Zerodha you can use my reference ID – RS7762 and name Subhash Bhaskaran. Unlike full brokers who charges you for the number of shares you bought, Zerodha charges you fix transaction charge of Rs.20 for each transaction. So I repeat, Never go for full brokers if you are a beginner !!.
Once you have started trading in equities, you can gradually switch to derivative section also. But as a beginner do paper trades and check your progress periodically for at least 3 moths before starting actual trades. You can refer my option trading strategies which I use to generate income on monthly basis consistently.
Hope the article helped you in understanding the basics of investing..
Happy reading.. Do share your views and suggestions…