“AM I MAKING PROFITS IN DERIVATIVES”
I have come across lot of derivatives traders and have see that most of derivatives traders, that I come across, are in huge losses. Still people don’t want to withdraw, wondering that they will succeed one day and that day they will not only recover all their losses but spend time in riches after that.
If you think that what I am saying is right (or may be a fraction of that) or if you are one among such people then I am writing this post especially for you. So let us look at these “Must Haves”
Though it is not the most important factor, but trust me, I know you. So first and foremost I am putting this point to make a point that your should have patience and read this article till the end. It is not going to take any thing more than 5 to 10 minutes of your busy schedule on the downside however on the upside you may come out as a better and confident trader.
Similarly, while trading it is important to kill butterflies in your stomach that makes you take decision based on reflexes rather than a though through judgement. Normally, decision taken in seconds are correct only if you have relevant and in depth knowledge about the the markets, regulations and other affecting factors. Else, it only creates chaos in trade book.
Knowledge about derivatives concept
If your actually wish to make profits in derivatives, then it is important to have a in depth understanding of derivatives as a concept. Half baked knowledge is a big risk to your money and just help you in creating a big hole in your pocket. Do not shy away in taking a online course on derivatives or attend a workshop on basics principles. Even if you done that few years back, you must revise it every few years.
Derivatives is a subject where every time you read, you will learn new things and with past experience it is better as you will be able to relate concepts with real market situations. Apart from derivatives, it is also advisable to learn fundamental and technical analysis and use of excel for building strategies.
Knowledge about Exchange regulations
Exchange traded derivatives are well governed by exchanges through its contract specifications and margins. Sometimes these regulations have a strong bearing on prevailing prices. Some of such examples I have witnessed are additional margins, corporate actions, delisting of contracts, warehouse locations in commodities, etc. Generally these things come into picture when their is a high volatility and at that time searching for such things becomes a costly affairs due to maintaining a loss bearing position in the market.
Plan your Trade
Do not take positions. just because you have to. Evaluate your strategy and then only take positions. Trade without a strategy is just a gamble all of us know the chances of winning in a gamble. Do not plan only for profits but also plan for losses. No point of wiping off your capital in a single trade but keep reserves. Derivatives a two edged sword and your losses can be equally magnified just like your profits. If you get afraid of possible loss figure then do not get into a trade as most of the trades tend to take wrong decisions when they gets cornered.
Think about ROI not Profits
I mostly see traders talking about profits in value terms. It do not tells anything about your investment and make your feel on the sky with small amount. But, just think, we all are here to make returns on investments. Even if we deposit 5 lacs in bank fixed deposits, we earn about 45 k as interest. Now imagine how we will look while feeling happy with 20k profits.
I know that, some of you might say that we make 20k profits in just one deal. But Respected Sir, I would request you to have a look at your ledger for last one year. If your ROI is above 12-15%, then you are a good trader, if below 12%, then you need improvement and if it is negative then please subscribe to my blog (as I will be writing more about it).