Showing posts with label derivatives market. Show all posts
Showing posts with label derivatives market. Show all posts

Monday, December 28, 2009

How should be your investment portfolio?

The short term trader is meant to the people you who trades in the Derivatives Market (Futures and Options Market) in Stock Markets or Commodities Market. A trader takes a position in the market in futures or options and holds it for few days. Normally, we can see one month, two month or three months contract in the derivatives market, but we have contracts ranging from months to years.
The trader holds the positions until he makes a profit or until he cuts his losses. Not all trades end up in profits. If the trade goes against his position then he has to close it before he makes a substantial loss. Anyway, he has to close the position with profit or loss or at cost. If he feels, the underlying security move as per his expectation for the next month also, then he can carry forward the contract to next month also. Likewise, he can carry forward the position to unlimited number of months.
So a person trading in this time frame is called a short term trader. In a futures positions, he has to pay a margin to hold a futures position (whether it is short or long). In case, if the position he holding is loss, then he needs to pay the extra margin to make up the loss and also to continue to hold the position. So, there is always a risk of holding these type of positions. Unlike, holding a delivery share, holding a futures position would anytime invite margin call. If we are not prepared for that, then we have to close the position in loss, if it goes our way in the near futures.

Trading for the short term is always risky. But the profits we make in the short term is substantial. You no need to hold it for a long time. Your money will not be blocked for a long time. You can quickly use your funds.
But in the long term investments, your money will be blocked for a long time. There may a time when your money would remain idle without appreciating for years. But it is less riskier than short term positions.
I prefer any investor to invest more than seventy percent of their investments in long term and trade only twenty five percent of your investments in short term trading.