Posts Tagged ‘stock trading’

Interest Rate Futures Section – Final Part :)

Interest Rate Futures Section Final Part

Interest Rate Futures Section Final Part

Hello Friends, we are here with the Final Part of our Interest Rate Futures educational section.
We would touch upon the benefits of the Interest Rate Futures and the future scenario related to it.

Here we go :

Key benefits of Interest Rate Futures:

Directional trading

As there is an inverse relationship between interest rate movement and underlying bond prices, so if one has strong view that the interest rates will rise in near future then he can take short position in IRF contracts and can be benefited from the falling futures bond prices.

Hedging portfolio

The holders of the GOI securities are exposed to risk of rising interest rates which in turn results in the reduction in the value of the portfolio.

So in order to protect against a fall in the value of the portfolio they can take short position in IRF.

Calendar spread trading

This spread is also known as an inter-delivery spread.

It is the simultaneous purchase of one delivery month of a given futures contract and the sale of another delivery month of the same underlying on the same exchange.

For example:

Buying a September 09 and simultaneously selling a December 09 contract.
A market participant can profit as the price difference between the two contracts widens.

The either case can also be possible.

Reduce the duration of portfolio:

Bonds with longer maturities are more sensitive to interest rate changes, and bond portfolio with longer duration will be more exposed to the vulnerability of the movement in interest rate.

So portfolio manager who is concerned about the rise in the short term interest rate risk would like to reduce the duration of the portfolio.

By entering into the IRF contract to NSE, the portfolio manager can reduce duration of the portfolio.

Arbitraging between cash and futures market:

Arbitrage is the price difference between the bond prices in underlying bond market and IRF contract without any view about the interest rate movement.

One can earn the risk-less profit from realizing arbitrage opportunity and entering into the IRF contract traded on NSE by initiating cash and carry trade.

Responses After launch:

After the launch of currency futures in August 2008, Interest-rate futures are the first major product to be introduced in India.

The interest rate futures began on August 31,2009 clocking trading volumes of Rs 276 crore in their first day of trade.

Market participants responded passionately to the product launch on the first day.

In around five hours of trading time available after inauguration, 1,475 trades were recorded resulting in 14,559 contracts being traded at a total value of Rs 267.31 crore.

In the beginning only two quarters has been introduced out of four, among which December 2009 was the most active with 13,789 contracts which has been traded actively.

There are nearly 638 members registered for this new product, out of which 21 are banks and there contribution to the total gross volume was 32.48 percent.

Future scenario:

BSE had received regulatory approval for interest rates futures and would launch in 8-10 weeks.

The Multi Commodity Exchange’s foreign exchange derivatives bourse has sought permission to launch trade in interest rate futures.

πŸ™‚

However, For More latest Industry, Gyan, Stock Market and Economy News Updates, Click Here

INTEREST RATE FUTURES – Part 2

Hello Friends, just an extension of our previous blog on interest rates futures where we touched upon the topic of interest rates future and what is it exactly.

Now we would understand that why is there need for interst rate futures and many more related aspects in this regard.

Here we go :

Why Interest rate futures?

Why Interest rate futures?

Why Interest rate futures?

The risk associated with the interest rate is uncertain and it never has been constant in the past, infact it would not remain constant in future also.

The volatility of interest rates has increased manifold in the last couple of years and recorded 17.40% in 2008 as compared to 8.51% in 2007.

This high fluctuation in volatility increases risk and requires tools to manage those risks.

Interest rate futures are the product for managing such interest rate risk.

πŸ™‚

Backbone of Interest Rate Future:

NSE, India’s largest stock exchange, began interest rate futures and offers the same reliable features as it provide to its other products with the following advantages:

β€’Standardization and flexibility

β€’Price transparency and liquidity

β€’Leverage effect due to a wider collateral management

β€’Advance trading software and technological edge

β€’Centralized clearing supported by guaranteed settlement

πŸ™‚

Who can be a part of it?

The major market participants of interest rate futures are

β€’Banks and Primary Dealers

β€’ Mutual Funds and Insurance Companies

β€’ Corporate Houses and Financial Institutions,

β€’FIIs and NRIs

β€’ Member Brokers and Retail Investors.

In Final part of this topic (which we would cover in our next blog), we would throw light on the benefits of the Interest Rate Futures and the future scenario related to Interest rate futures.

πŸ™‚

Stay Tuned πŸ˜‰

However, For More latest Industry, Gyan, Stock Market and Economy News Updates, Click Here

INTEREST RATE FUTURES – What’s That?

Hello Friends,

For past weeks we have been coming up with educational and informative inputs on topics like economic indicators, Positive Undertones in the Economy etc;

In this Blog now we would throw light on “Interest rate futures”.

What is Interest Rates Future?

What is Interest Rates Future?

What are interest rate futures?

An interest rate futures contract is β€œan agreement to buy or sell a debt instrument at a specified future date at a price that is fixed today.”

Interest rate futures are useful to those who are willing to trade in future interest rates and would like to benefit from interest rate movements.

πŸ™‚

The underlying instrument in this contract is 10 year National Coupon-bearing government of India (GOI) security, whereas the notional coupon is of 7% with semi-annual compounding interest rate.

πŸ™‚

The GOI securities are the underlying assets which should have a maturity status between seven-and-a-half years and 12 years from the first day of the delivery month.

Interest Rate Futures are the most widely traded derivatives instrument in the world.

πŸ™‚

The total outstanding notional principal amount in Interest Rate Futures is 30.09 times higher than equity index futures.

Interest rates are linked to a variety of economic conditions.

They can change rapidly, influencing investments and debt obligations.

In a market environment where long term debt issuance by the government is increasing and the demand for it is growing, there is a strong need for a cost efficient hedging instrument against interest rate.

πŸ™‚

In Next Coming parts, we would try to understand why Interest rate futures are needed, what is the backbone of interest rate futures and many more related aspects in this regard. πŸ™‚

Stay Tuned πŸ˜‰

However, For More latest Industry, Gyan, Stock Market and Economy News Updates, Click Here


Festivals and Trading Holidays Set to Keep Dalal Street Less Lively This Week :)

Despite bullish sentiment on hopes of strong quarterly results from firms, the Dalal Street is likely to less lively this week

Despite bullish sentiment on hopes of strong quarterly results from firms, the Dalal Street is likely to less lively this week

Despite bullish sentiment on hopes of strong quarterly results from firms, the Dalal Street is likely to less lively this week, as festive mood and fewer trading sessions would see investors withhold their positions and postpone buying, analysts said.

πŸ™‚

Brokers believe the market sentiment will remain positive, even as investors will get only three trading sessions before the second quarter results of companies starts coming in.

πŸ™‚

“The market is expected to remain in consolidation phase on the back of less trading sessions and festive season,” SMC Global Vice-President Rajesh Jain said.

The market would trade only for three days this week, as Monday and Friday will be trading holidays on the occasion of ‘Dussera‘ and ‘Gandhi Jayanti‘, respectively.

πŸ™‚

Over the week, the BSE Sensex slid 193.43 points, or nearly 1.14 per cent and closed at 16,693 points.

πŸ™‚

The under current in the market is bullish, there are not much expectations by investors for this week, while stocks may also look for global cues,experts observed.

The result season will kick start with IT major Infosys scheduled to announce its second quarter results on October 9.

During the last week, foreign institutional investors have put in over Rs 6,528.1 crore in Indian markets.

πŸ™‚