F&O Trade Techniques
Many time people have asked me whether any mathematical method is available to trade in futures. The answer is yes it is available. Then the next though comes in our mind “how to implement such a model which will yield decent return simultaneously manage the risk?” before jumping into the discussion we must understand the future trade. In simplest term “it is the agreement between the buyer and seller to execute a trade in some future date”. The trade is initiated by both the parties by the way of paying some token amount called margin. The obligation of the trade is guaranteed by the exchange through daily Mark to market procedure. Hence we have the risk to manage the MTM and margin if volatility increases. if you will not manage the future trade then any unfavorable condition may land you in huge loss. The success solely depend on how you manage the risk.
Mathematical model available to manage the risk in the future trade:
The details of these individual methods are beyond the scope of this article. How ever plenty of web resource is available to guide you in this subject.
However trade can have objective. I always say do not expect too much from market. Be objective and keep minimum exposure with the help of decoupling method or option hedging.