Futures trading

I had been looking at futures trading for a while, but always maintained a healthy distance from it. My friend Shashi was constantly pushing me to give it a try, my relationship manager at ICICI kept calling me every day with updates on the market and trading strategies, but I had resisted.

The thing that changed my mind was the falls that we saw in October. I could only watch as every single investment that I had made (stocks, mutual funds, PMS schemes) went down in value by 25, 35 and even 50% in some cases. It seemed that the least risky way to make money was going short. Given that we follow a same day settlement, short selling in the cash market meant day trading. In my view, that is just gambling and it has never worked for me in the past.

So, I have made my first tentative steps trading in futures, a month ago. I set a few ground rules for myself before I started
- Set aside a small amount of money and do not take positions beyond this. Ensure there is adequate margins available so that the broker does not close out the position
- No day trading, I don't have access to a trading screen or my broker's website most of the time. So, most orders would be placed at the start of the day
- Very conservative stop losses. This was the most difficult decision for me. My reasoning is that most people put very conservative stop loss, which in a volatile environment gets triggered very easily. While this may limit thier losses, it would also rule out opportunities for gain in the longer term
- Restrict the trading to the NIFTY and a few stocks that I had been following for a long time. At this time, I've picked 5 of them (Bharti, SAIL, Reliance, TCS and Infosys). All of these are fairly volatile and extremely liquid

I did have a few stomach churning sessions towards the end of last month when I had a buy on NIFTY at 3300. Over the next few days, it dipped to 2300, and I was down by almost a lakh of rupees. I wasn't prepared for such a big loss right at the start, so I broke my rule #1 and paid up the additional margin. Thankfully, the market retraced to 3200 and I was able to exit with a much smaller loss.

Other than that single transaction, it has been a really good month. I've been lucky in making the right calls both on the short and long sides. I know this won't last forever, there will be the inevitable bad call, but as long as I keep my head and not get carried away, I'm hopeful that it will give me some good profits.

Of course, this will never make up for the losses elsewhere, but in a general gloomy outlook, every bit of good news helps.