How can I make money from Future and Options Trading? Can I earn second source of Income from F&O? I understand big money can be made from F&O Trading. What are the ways or tips to make money from F & O Trading?
Stay away from F&O Trading. Investment pundits will grossly disagree with this statement. They may tag me as naïve, a person showing a lack of experience, wisdom, or judgement. I am open to their criticism, but won’t change my stand – Stay away from F&O.
This year, from our office, we have filed 112 Income Tax Returns (ITR), which had F&O transactions. Of which, 110 people incurred a loss. This depicts the probability of making profits! The majority of them are from Bangalore, but we did file returns from people in Kolkata, Delhi, Pune, Jaipur, Ahmadabad, Mumbai, etc. I could see, over 90% of them are in the working age group, between 30 to 60 years. The profile of the people includes Finance professionals, Doctors, and businessmen, though the major chunk is software engineers. To sum up, irrespective of their educational background, location, age group, experience, and knowledge, they ended up adding loss to their kitty. A similar trend is noticed in the previous years as well. So, I strongly suggest people to stay away from F & O Transactions.
What do you mean by F&O Trading?
Futures & Options are the two most popular trading derivatives available for trading in Indian Stock markets. I am not discussing the process of trading. It is a topic by itself and requires a full-scale article. I will only mention how it is different from other forms of trading.
Mr. Dinesh has Rs.1,50,000 to invest in Stocks. If he opts for F&O, the stockbroker will consider Rs.1.5 Lakhs as margin money and allow him to trade up to, say, Rs.5 Lakhs. Assume, he buys Futures worth 5 lakhs and to his bad luck makes a loss of Rs.1.50 lakhs. With this, his entire capital gets wiped off. Thus, under F&O, one can trade up to, say, 3 or 4 times the money he owns. This may result in eroding massive capital or wealth just in one wrong move!
Swing Trading – This is traditional short-term stock trading. In the above example, Dinesh can buy stocks worth Rs.1.50 lakhs only. If he makes a loss, the loss can be 10, 20 or 50% of the capital, thus the risk is limited to the amount of money he deploys. This is better. If you want to try your luck, go through this route. Profits may be less, likewise, the risk is also limited.
Apart from the financial risk, one should look at other issues as well.
Trading hours – The stock market works five days a week, between 9 am and 3.30 pm. This exactly coincides with office timings. The one who trades in stocks, especially in F&O, can’t focus on office work. More the loss he makes, the lesser the productivity at the office. If one indulges in trading for 1 -2 years, he will be neither successful in profession nor make money in trading. Finally, a fit case for counselling by psychiatrists.
Better ways to earn money – Focus on what you are good at. In the urge of making passive income, unknowingly, you will lose on the ground where you have expertise. A doctor can earn more, make a better name in his field instead of wasting quality time in stock markets. Not worth the efforts.
Anger and frustrations – Once you start making a loss, you will lose control of yourself. A social media freak will start mindlessly abusing the Government, people, shouting at the team members in office. Needless to say, the family members are the immediate and soft targets to vent their frustration.
Health hazard – We can confidently add F&O to the list of tobacco like items – injurious to health. Trading invariably increases your Blood Pressure. Since you spend a lot of time watching the movement of stock prices, you start preferring isolation and lose friends! You prefer to talk mostly about Stock markets with your colleagues. Stocks will rule over other social fabrics. If you make money at least, we can say, a fair enough barter with other things in life. Contrarily, you will lose both – money and happiness.
Lack of interest – F&O is an addiction. It is worse than opium or cocaine or alcohol. It is an intoxication. Once you get the taste of perennial trading, you will lose interest in doing other things. In the present age, without upskilling, one can’t continue to work in any field. If you are part of the working class, your involvement, continuous education and upskilling are a must. If not, be ready to face pink slips.
Do you like social service? Want to give back something to society? Here is a suggestion. Please advise your kith and kin, friends, and colleagues to stay away from this craving habit of Futures business. Options start with the letter O, which equals 0 (ZERO). I always say Future will be ZERO (F-O)
Not convinced with my views? No problem. Here is the quote from Warren Buffett (most successful investment Guru in the World) “weapons of mass wealth destruction” Still want to try your luck? You will be my 111th client! Good Luck – F&Omen. I remain your well-wisher.
Thank you so much for the detailed Blog. This Blog gives helpful information about Future and Options Trading. I think if beginner follow every guideline mentioned in the blog, then they can surely learn about F&O trading.