How to make money by trading in futures and options

In an online chat with Rediff Get Ahead readers on October 9 Nithin Kamath, CEO, Zerodha.com answered readers' queries on how to trade in futures and options.

Here is the unedited chat transcript.

kaushal: What are the conditions imposed by SEBI for brokerages to start offering F&O services?

Nithin Kamath: SEBI does a rigorous check on background of promoters, networth requirement, market knowledge of the management, technology and risk management systems before allowing a brokerage to offer f&o, along with this there is continuous audits done by the exchanges to ensure that everything is in place.

ulfat: Who should ideally trade in futures & options segment?

Nithin Kamath: Futures and options requires some commitment in terms of time to learn how to trade and then tracking your trades once you have taken them. If you are a positional trader, then I guess a person who can commit atleast a couple of hours everyday. Also, the business involves leverage and can be an emotional roller coaster, so a person who can handle that volatility.

alex: Which books did you read to become an expert? What role does experience play in becoming a great F&O trader?

Nithin Kamath: Best books to get started with are those which talk about the good habits of profitalble traders as mentioned below. But once you are done with that, it is self discovery in reading and researching on what strategy best suits u.

Yep, experience is the key, important thing is to learn from your experience and not make the same mistake twice.

DSP BR Balanced Fund: Sell:: Business Line

Tech Tools: Customise insurance:: Business Line

Ever wonder if the life insurance plan you signed-up for is sufficient, now that you have taken a home loan? Re-assessing your insurance cover is required when life’s needs changes, but many of us may not want to tackle the complex calculation.

Tata AIA Life has come up with three calculator tools to help customize insurance products to your requirements. The Protection gap calculator computes life insurance cover required to maintain a family’s standard of living both pre & post retirement, after considering any outstanding loans and existing life insurance cover.

Child Need planner helps to plan your monthly savings required to meet children’s financial requirements such as education or marriage.

Retirement gap calculator computes the consistent monthly savings needed to achieve the desired retirement income. You can also calculate the required corpus at the time of retirement, after considering future inflation estimates.

The app is available for Android and Apple platform and can be downloaded for free. The company says that there has been around 3,000 downloads in the one month since launch. Life insurance advisors are also using these calculators to gauge their client’s needs.

When cheques bounce: CEO, BankBazaar: Business Line

Cheque bouncing is one of the most common offences in the country, with over 40 lakh pending cases in the Supreme Court. A cheque can bounce for several reasons such as insufficiency of funds, mismatch in signature, stale cheques, post-dated cheques or if there are corrections in the cheque without authentication. The bank collects a penalty from the defaulter when a cheque bounces. The person issuing the cheque can even get a jail term.

All that’s fine, but what are the remedies if you’ve been issued a cheque which has bounced?

LEGAL ACTION

Almost every bank gives a ‘cheque return memo’ along with the returned cheque stating the reason for the bounce. If you hold the cheque, you need to inform the drawer and ask if you can re-present it to the bank within the 3-month period.

If cheque is dishonoured even the second time, then you can take legal action. As a first step, you can send a legal notice to the defaulter within a period of 30 days from receiving the cheque return memo. The notice should contain all necessary details.

The defaulter needs to make a fresh payment within a period of 15 days from the receipt of this notice. If he still doesn’t make the payment within this time period, then you can file a complaint in the magistrate court. This case should be filed within a maximum period of 1 month from the date of expiry of the 15-day period.

Remember that the complaint should be filed within the time frame. If complaints are made outside the time frame, then the case becomes time barred and will not be entertained. When your case comes for hearing, the defaulter can be punished with a jail term for two years and/or a penalty which can be up to twice the cheque amount. The defaulter can appeal against the order within a period of 1 month of judgement.

However, it may not be so straightforward all the time. Here are two common instances when cheques bounce and what can be done.

Fund Basics: Redemption FAQs:: Business Line

Funds don't process requests to change bank details that is submitted along with redemption.

Investors may at times find that add-on requests submitted along with redemptions are not processed. We present below some queries received from investors regarding their redemption requests:

I have requested for redemption along with a request for a change in bank details. However, the bank details were not changed and the redemption cheque was sent with old bank details printed therein.

As a risk mitigation measure, Mutual Funds do not process request to change bank details that is submitted along with redemption. Redemption proceeds will be sent to the original bank account or with the original bank details printed in the cheque. Investors who have closed a bank account and are using a new bank should ensure to update the new bank account details in their folios before submitting redemption request.

Mutual Funds now allow individual investors to register up to five bank accounts in their folios. This allows investors to add accounts in their folios and later be able to choose the bank account into which the redemption proceeds can be credited and remove any closed bank account from the folio. This will prevent delays in the receipt of redemption amounts.

I had invested earlier as a minor and am now 18 years old and gave a redemption request, attested by my Bank Manager. However, it was not processed.

Any folio with an investment on behalf of a minor will be locked once he/she attains the age of majority. Transactions are not permitted in such folios till the status of the investor is changed from Minor to “Major”. In fact Mutual Funds send advance intimation to investors informing them to register their new status in the folio. Such investors should register the change in status to “Major”. Once registration is done, investor can freely transact in the folio on their own. Mutual Fund / Registrar websites provide the required form detailing the documents required to effect this change.

I want to receive all future redemptions as a credit into my account directly. What do I do?

Please inform the Fund/Registrar through a written, signed request. In your letter, please mention the IFSC code of your Bank and attach a cancelled cheque leaf reflecting the code. The IFSC Code will be registered in your records and mode of payout changed to electronic.

I have requested a Mutual Fund by letter to “Redeem complete amount and make balance Zero”. The fund has not closed the account and continues to debit the amount of SIP and I am still holding units in spite of asking for a complete redemption.

You seem to be having a running SIP in a scheme. Please note that redemption of all Units and ceasing of SIP are two different processes. If you ask for redemption of all units in a scheme, all the units available on the particular date of the redemption request will be redeemed.

The SIP will however continue even if you have mentioned “Redeem all units” in your letter. To stop the SIP, you would have to give a separate written request duly signed asking the Fund to stop the particular SIP. Ideally such requests should be submitted 3-4 weeks in advance of the next SIP installment.

I have units in my demat account. How can I redeem?

You may place a redemption request with your broker – trading member of the stock exchange and the process would be effected through the stock exchange / depository.