{"id":21134,"date":"2022-03-08T14:30:49","date_gmt":"2022-03-08T14:30:49","guid":{"rendered":"https:\/\/www.5paisa.com\/finschool\/?post_type=markets&#038;p=21134"},"modified":"2026-08-31T15:55:07","modified_gmt":"2026-08-31T10:25:07","slug":"leverage-and-payoff","status":"publish","type":"markets","link":"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/leverage-and-payoff\/","title":{"rendered":"Leverage and Payoff"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"21134\" class=\"elementor elementor-21134\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-23ba90b elementor-section-full_width tab_container elementor-section-height-default elementor-section-height-default\" data-id=\"23ba90b\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-b6a6f9f\" data-id=\"b6a6f9f\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-inner-section elementor-element elementor-element-e0f864e elementor-section-full_width elementor-section-height-default elementor-section-height-default\" data-id=\"e0f864e\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-wide\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-50 elementor-inner-column elementor-element elementor-element-7efb245 chapters_list\" data-id=\"7efb245\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-33d4575 elementor-widget elementor-widget-shortcode\" data-id=\"33d4575\" data-element_type=\"widget\" data-widget_type=\"shortcode.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"elementor-shortcode\">\t<script>\n\t\tjQuery(document).ready(function(){\n\t\t\tjQuery(\"#post_chapters a[href*='\" + location.pathname + \"']\").addClass(\"current\");\n\t\t})\n\t<\/script>\n\t<div class=\"desktop_chapters\"><div id=\"post_chapters\"><div class=\"post_chapters-heading\">Chapters<\/div><ul><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/introduction-to-derivatives\/\">Introduction To Derivatives<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/derivatives-market\/\">Derivatives Market<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/forwards-contract\/\">Forwards Contract<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/futures-contract\/\">Futures Contract<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/the-futures-trade\/\">The Futures Trade<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/leverage-and-payoff\/\">Leverage and Payoff<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/margin-and-m2m\/\">Margin and M2M<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/margin-calculator\/\">Margin Calculator<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/all-about-shorting\/\">All About Shorting<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/the-nifty-futures\/\">The Nifty Futures<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/the-futures-pricing\/\">The Futures Pricing<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/hedging-with-futures\/\">Hedging With Futures<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/open-interest\/\">Open Interest<\/a><\/li><\/ul><\/div><\/div><div class=\"chapters_toggle\" title=\"chapters\"><a title=\"chapters\" href=\"#\" id=\"open_chapters\"><span>View Chapters<\/span>&nbsp;&nbsp;&nbsp;<i class=\"fa fa-chevron-right\"><\/i><\/a><a title=\"chapters\" href=\"#\" id=\"close_chapters\" style=\"display:none;\"><span>Hide Chapters<\/span>&nbsp;&nbsp;&nbsp;<i class=\"fa fa-chevron-right\"><\/i><\/a><\/div>\t<script>\n\t\tjQuery(document).ready(function(){\n\t\t\tjQuery('.chapters_toggle #open_chapters').click(function(e){\n\t\t\t\te.preventDefault();\n\t\t\t\tjQuery('.desktop_chapters').css(\"left\",\"0px\");\n\t\t\t\tjQuery('#open_chapters').css(\"display\",\"none\");\n\t\t\t\tjQuery('#close_chapters').css(\"display\",\"block\");\n\t\t\t\t\/\/jQuery('.chapters_toggle').css(\"width\",\"200px\");\n\t\t\t})\n\t\t\tjQuery('.chapters_toggle 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          \n                                                            <span class=\"eael-tab-title title-after-icon\" >Videos<\/span>                            \n                                                    <\/li>\n                    \n                                  <\/ul>\n            <\/div>\n            \n            <div class=\"eael-tabs-content\">\n\t\t        \n                    <div id=\"study-tab\" class=\"clearfix eael-tab-content-item active-default\" data-title-link=\"study-tab\">\n\t\t\t\t        <p><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash='A-Quick-Recap' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2><strong>6.1\u00a0<\/strong><strong><b>A Quick Recap<\/b><\/strong><\/h2>\r\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-77042 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/A-Quick-Recap-1.png\" alt=\"A Quick Recap\" width=\"884\" height=\"790\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/A-Quick-Recap-1.png 884w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/A-Quick-Recap-1-300x268.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/A-Quick-Recap-1-768x686.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/A-Quick-Recap-1-50x45.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/A-Quick-Recap-1-100x89.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/A-Quick-Recap-1-150x134.png 150w\" sizes=\"(max-width: 884px) 100vw, 884px\" \/><\/p>\r\n<p>In the last chapter, we saw how futures trade works using the example of Infosys Oct 2025 contract. The setup was easy: Infosys had just released Q2 FY26 results. The stock price fell sharply intraday from \u20b91,480 to \u20b91,437, on the back of a cautious guidance even as revenue and profit growth was solid. The October futures fell to Rs 1,442.50.<\/p>\r\n<p>This was seen as an overreaction and a bullish view was formed. The trader felt that Infosys would gain in the coming days and decided to buy one lot of October Futures at \u20b91,442.50. The trade was later squared off for a profit as the price moved up to \u20b91,475<\/p>\r\n<p>But this raises an important question. If the expectation is that Infosys will go up, why not simply buy the stock in the spot market and hold? Why deal with the complexity of a futures contract?<\/p>\r\n<p><strong>Let us walk through this.<\/strong><\/p>\r\n<p>When you buy futures , you are entering into a time-bound agreement with a counterparty . You are committing to a price and a date. If your view doesn&#8217;t work out before expiry, you could lose money. If, on the other hand, you buy shares on the spot market, you own them outright. You can hold them in your DEMAT account for as long as you want, without worrying about expiry or margin requirements.<\/p>\r\n<p><strong>Then why do traders still go for futures?<\/strong><\/p>\r\n<p><strong>The answer is Financial leverage .<\/strong><\/p>\r\n<p>Infosys Futures are available at a margin of \u20b911,000 and not the full contract value (\u20b9432,750 for 300 shares) upfront. All you need to do is put down a margin, typically 20-25%. That means you can control a position of over \u20b94 lakh with an investment of about \u20b986,000-\u20b91,08,000.<\/p>\r\n<p>This leverage can work for you to earn more. In our example, Infosys moved up by \u20b932.50, leading to a profit of \u20b99,750. That\u2019s a return of more than 10 percent on margin in just a few days. Spot buying would be full capital and the same absolute gain but a lower percentage.<\/p>\r\n<p>Leverage is a double-edged sword, of course. If the price falls, losses are multiplied as well. And that\u2019s why futures are best used when you have a strong directional view, and a clear timeframe.<\/p>\r\n<p>In short, futures are fast, flexible and capital efficient. They\u2019re not a replacement for long term investing \u2013 but they\u2019re powerful tools for short term opportunities when used with discipline.<\/p><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash='Leverage-in-Perspective' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2 style=\"text-align: left\"><strong>6.2\u00a0 Leverage in Perspective<\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77043 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-in-Perspective-1.png\" alt=\"Leverage in Perspective\" width=\"964\" height=\"471\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-in-Perspective-1.png 964w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-in-Perspective-1-300x147.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-in-Perspective-1-768x375.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-in-Perspective-1-50x24.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-in-Perspective-1-100x49.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-in-Perspective-1-150x73.png 150w\" sizes=\"(max-width: 964px) 100vw, 964px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<p>Leverage is something we use in day to day life, often without realising we\u00a0are using it. Far too often we will spend a little of our capital to gain access to a much larger asset or opportunity \u2013 be it buying a car, booking a holiday or investing in a business. That principle is formalised and magnified in the financial markets in instruments such as futures.<\/p>\r\n<p><strong><b>Let<\/b><\/strong><strong><b>\u00a0u<\/b><\/strong><strong><b>s draw on a familiar analogy.<\/b><\/strong><\/p>\r\n<p>Suppose, someone want\u2019s to buy a car which costs Rs.10 Lakhs. They don&#8217;t pay the full amount in cash. They take a loan and pay only 1.5 lakhs as down payment. \u20b98.5 lakhs is financed as balance amount. They pay 15% of the total value of the car and get full access to it. Now say the resale value of the car increases to \u20b9 12 lakhs, due to demand or scarcity. If they sell it, they will make a gain of \u20b9 2 Lakh. That\u2019s a leverage return of 133% on an initial investment of \u20b91.5 lakh.<\/p>\r\n<p><strong>That\u2019s exactly how futures trading is done.<\/strong><\/p><\/div>\n<div id='text_slider_slide03' class='sa_hover_container' data-hash='Leverage-Example' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2><strong>6.3 <\/strong><strong><b>Leverage <\/b><\/strong><strong><b>Example<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-77044 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-example-1.png\" alt=\"Leverage example\" width=\"938\" height=\"749\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-example-1.png 938w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-example-1-300x240.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-example-1-768x613.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-example-1-50x40.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-example-1-100x80.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-example-1-150x120.png 150w\" sizes=\"(max-width: 938px) 100vw, 938px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<p>Suppose you have Rs 1 lakh and you are very optimistic about HDFC Bank. You think the stock will go up in the next few days. Now you have two choices &#8212; buy HDFC Bank shares in the Spot Market or buy HDFC Bank Futures from the Derivatives segment. Both let you act on your view, but the mechanics and the results are very different.<\/p>\r\n<p><strong><b>Option 1: Buying HDFC Bank on the spot market<\/b><\/strong><\/p>\r\n<p>Let&#8217;s assume HDFC Bank is trading at \u20b91,650 per share on December 1, 2025. For Rs 1,00,000 you get:<\/p>\r\n<p>1,00,000 \/ 1,650 = Approximately 60 shares<\/p>\r\n<p>Actual amount spent = 60 \u00d7 \u20b91,650 = <strong><b>\u20b999,000<\/b><\/strong>\u00a0(\u20b91,000 remains uninvested)<\/p>\r\n<p>Now think by 10th December 2025, HDFC Bank goes up to \u20b91,710 per share. You decide to sell your 60 shares.<br \/>Sell Value = 60 \u00d7 \u20b91,710 = \u20b91,02,600<br \/>Profit = \u20b91,02,600 \u2212 \u20b999,000 = \u20b93,600<br \/>Return = \u20b93,600 \/ \u20b91,00,000 = 3.6%<\/p>\r\n<p><strong><b>Option 2: Buy HDFC Bank Futures<\/b><\/strong><\/p>\r\n<p>You decide to buy 1 lot of HDFC Bank Futures instead of buying shares. Lot size is 550 shares. Futures price is also \u20b91,650. The contract value is in total:<\/p>\r\n<ul>\r\n<li>\u20b91,650 \u00d7 550 = \u20b99,07,500<\/li>\r\n<\/ul>\r\n<p>But you don\u2019t have to shell out Rs 9 lakh upfront. Just need to put up a margin, say 15% which is:<\/p>\r\n<ul>\r\n<li>Margin = 15% of 9, 07, 500 = 1, 36, 125<\/li>\r\n<\/ul>\r\n<p>You don\u2019t have the money to buy a full lot (\u20b91,00,000) but you can buy a fractional lot or trade in mini contracts (if available). For simplicity, let\u2019s say you buy half a lot (275 shares) requiring:<\/p>\r\n<ul>\r\n<li>Margin = 275 \u00d7 \u20b91,650 \u00d7 15% = \u20b968,062.50<\/li>\r\n<\/ul>\r\n<p>Now, let\u2019s say that on expiry HDFC Bank Futures closes at \u20b91,710. Your reward is :<\/p>\r\n<p>Gain per share = Rs 1,710 \u2013 Rs 1,650 = Rs 60<\/p>\r\n<p>Total profit = 275 \u00d7 \u20b9 60 = \u20b9 16,500<\/p>\r\n<ul>\r\n<li>Return on margin = Rs. 16,500 Rs. 68,062.50 = 24.24%<\/li>\r\n<\/ul>\r\n<p>That\u2019s a much higher return than the spot market, even though the price movement is the same. That is the power of leverage.<\/p>\r\n<p><strong><b>Comparison Table \u2013 Spot vs Futures (HDFC Bank Example)<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Particulars<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Spot Market (HDFC Bank)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Futures Market (HDFC Bank)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Capital Available<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,00,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,00,000<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Buy Price<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,650<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,650<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Quantity Purchased<\/p>\r\n<\/td>\r\n<td>\r\n<p>60 shares<\/p>\r\n<\/td>\r\n<td>\r\n<p>275 shares (half lot)<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Contract Value<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b999,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b94,53,750<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Margin Required<\/p>\r\n<\/td>\r\n<td>\r\n<p>Not applicable<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b968,062.50<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Sell Price<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,710<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,710<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Sell Value<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,02,600<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b94,70,250<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Profit<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b93,600<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b916,500<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Return on Capital<\/p>\r\n<\/td>\r\n<td>\r\n<p>3.6%<\/p>\r\n<\/td>\r\n<td>\r\n<p>24.24%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>Points to remember<\/p>\r\n<ul>\r\n<li>The capital you put to work is the limit of your return in the spot market.<\/li>\r\n<li>Futures market allows you to have exposure to a larger position with less money up front as margin.<\/li>\r\n<li>Leverage amplifies returns when you are right.<\/li>\r\n<li>But leverage can also amplify losses if the price moves against you.<\/li>\r\n<li>Futures good for directional trading in short term, spot investment for long term holding<\/li>\r\n<\/ul>\r\n<p>This example clearly illustrates why short-term traders often favour futures. Used with discipline and an awareness of risk, futures can be very profitable. They are a powerful tool because they allow you to control a large position with limited capital.<\/p>\r\n<p><strong><b>Convergence of HDFC Bank Spot and Futures Price<\/b><\/strong><\/p>\r\n<p><strong>Concept<\/strong><\/p>\r\n<p>In the derivatives trading, convergence means the futures price and the spot price of the underlying asset must converge to the same price at the expiry date of the contract. Arbitrage opportunities and settlement rules enforce this principle.<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77045 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Convergence-of-HDFC.png\" alt=\"Convergence of HDFC\" width=\"1046\" height=\"698\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Convergence-of-HDFC.png 1046w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Convergence-of-HDFC-300x200.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Convergence-of-HDFC-1024x683.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Convergence-of-HDFC-768x512.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Convergence-of-HDFC-50x33.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Convergence-of-HDFC-100x67.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Convergence-of-HDFC-150x100.png 150w\" sizes=\"(max-width: 1046px) 100vw, 1046px\" \/><\/p>\r\n<p>One of the basic principles while trading futures &amp; options is that on the expiry date, the future\u2019s price converges to the spot price of the underlying asset. This is not only because of arbitrage but settlement and marking to market also contribute to this convergence. On 1 st December 2025, the spot and future price of HDFC Bank was \u20b91,650.\u00a0<\/p>\r\n<p>The trader anticipated the price to increase further thus he decided to take a long position in HDFC Bank Futures. Over the coming ten days, the spot price increased gradually reaching \u20b91,710 on 10th December implying a bull run in the market. Similarly, the future\u2019s price also gradually increases converging to the spot\u2019s price to mark the expiry of the contract on 10th December.<\/p>\r\n<p>The\u00a0reason why future\u2019s price converges to\u00a0the\u00a0spot\u2019s\u00a0price\u00a0can\u00a0be\u00a0explained\u00a0by\u00a0the\u00a0fact\u00a0that\u00a0any\u00a0deviation\u00a0from\u00a0the spot price\u00a0creates\u00a0an\u00a0arbitrage\u00a0opportunity\u00a0which\u00a0gets\u00a0exploited by\u00a0the\u00a0traders\u00a0until\u00a0the prices\u00a0are\u00a0back in line leaving no scope for further exploitation.\u00a0Secondly,\u00a0the future\u2019s contract gets settled\u00a0on expiry at the spot price,\u00a0thus\u00a0converging\u00a0the\u00a0two.<\/p>\r\n<p>The convergence of future\u2019s and spot\u2019s price is well depicted by the graph shown below. The graph shows a long position taken by the trader. The two lines represent the increase in price (from \u20b91,650 to \u20b91,710) of the spot and the future\u2019s contract. On 10th December (expiry date), the two lines meet indicating that the future\u2019s price has converged to the spot\u2019s price. In this way, the graph explains how the future\u2019s price may deviate from the spot\u2019s during the contract period but eventually converges to it on expiry.<\/p><\/div>\n<div id='text_slider_slide04' class='sa_hover_container' data-hash='Leverage-Calculation' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2><strong>6.4 <\/strong><strong><b>Leverage Calculation<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77046 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-calculations.png\" alt=\"Leverage calculations\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-calculations.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-calculations-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-calculations-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-calculations-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-calculations-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-calculations-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-calculations-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Leverage-calculations-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>When traders talk about leverage, a common question is: \u201cHow many times leverage are you exposed to?\u201d The answer matters because higher leverage means higher profit potential, but also higher risk.<\/p>\r\n<p>Let\u2019s revisit the HDFC Bank Futures trade. On 1st December 2025, HDFC Bank Futures were trading at \u20b91,650 per share. The lot size was 550 shares, so the contract value was: Assuming the margin requirement was 15%, the margin deposit would be:<\/p>\r\n<p>Now, let\u2019s calculate the leverage:<\/p>\r\n<p>This means every \u20b91 in your trading account gives you exposure to \u20b96.67 worth of HDFC Bank stock. This is a moderate leverage ratio, and relatively manageable.<\/p>\r\n<p>But what happens if the margin requirement drops?<\/p>\r\n<p>Suppose the margin required was only \u20b925,000.<\/p>\r\n<p>Then:<\/p>\r\n<p>This is a very high leverage ratio. At 36.3x leverage, even a small adverse move in the stock can wipe out your entire margin.<\/p>\r\n<p>To calculate the percentage fall that would wipe out your capital:<\/p>\r\n<p>So if HDFC Bank falls by just 2.75%, you lose your entire \u20b925,000 margin.<\/p>\r\n<p>On the flip side, if the stock rises by 2.75%, you double your money. That\u2019s the dual nature of leverage\u2014it amplifies both gains and losses.<\/p>\r\n<p><strong><b>Summary Table \u2013 Leverage Scenarios<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Scenario<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Contract Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Margin Required<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Leverage (x)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Risk Threshold (%)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Standard Margin (15%)<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b99,07,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,36,125<\/p>\r\n<\/td>\r\n<td>\r\n<p>6.67<\/p>\r\n<\/td>\r\n<td>\r\n<p>15.0%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p>Aggressive Margin (\u20b925,000)<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b99,07,500<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b925,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>36.3<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.75%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide05' class='sa_hover_container' data-hash='The-Futures-Payoff' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2><strong>6.5 The Futures Payoff<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77047 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/The-Futures-Payoff-1.png\" alt=\"The Futures Payoff\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/The-Futures-Payoff-1.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/The-Futures-Payoff-1-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/The-Futures-Payoff-1-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/The-Futures-Payoff-1-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/The-Futures-Payoff-1-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/The-Futures-Payoff-1-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/The-Futures-Payoff-1-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/The-Futures-Payoff-1-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Let\u00a0us suppose that\u00a0you have\u00a0bought\u00a0one\u00a0lot\u00a0(550\u00a0shares) of\u00a0HDFC Bank Futures\u00a0on the basis of your research\u00a0expecting\u00a0that\u00a0the price\u00a0of\u00a0shares\u00a0of\u00a0the\u00a0company\u00a0will\u00a0rise\u00a0in\u00a0the\u00a0market. The price of shares of HDFC Bank is currently\u00a0\u20b91,650 per share\u00a0on\u00a01st\u00a0December\u00a02025.\u00a0<\/p>\r\n<p>You are expecting\u00a0the price\u00a0to\u00a0rise further from today\u2019s closing price of \u20b91,650 per share. If your expectations come true, you\u00a0will\u00a0make\u00a0profits,\u00a0otherwise, you\u00a0will\u00a0be\u00a0posting losses on your trade.\u00a0For every conceivable price of the share on expiry, you will either be making profits or losses. This is what is called a futures payoff structure, which shows the profits or losses for a given range of expiry prices. Let us make a payoff structure assuming that the price on expiry day (10 th Dec 2025) may vary from \u20b91,500 to \u20b91,800 in increments of \u20b910 for both upwards and downwards movements. In this payoff structure we will indicate the following information for each expiry price:<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77048 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Payoff-Chart-for-Long-Futures-Options.png\" alt=\"Payoff Chart for Long Futures Options\" width=\"534\" height=\"321\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Payoff-Chart-for-Long-Futures-Options.png 534w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Payoff-Chart-for-Long-Futures-Options-300x180.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Payoff-Chart-for-Long-Futures-Options-50x30.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Payoff-Chart-for-Long-Futures-Options-100x60.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Payoff-Chart-for-Long-Futures-Options-150x90.png 150w\" sizes=\"(max-width: 534px) 100vw, 534px\" \/><\/p>\r\n<p><strong><b>P&amp;L = (Expiry Price &#8211; Buy Price) \u00d7 Lot Size<\/b><\/strong><\/p>\r\n<p>Since the buy price is \u20b91,650 and lot size is 550 shares, every \u20b91 move in price results in a \u20b9550 change in profit or loss.<\/p>\r\n<p><strong><b>Payoff Table \u2013 HDFC Bank Futures (Buy Price \u20b91,650, Lot Size 550)<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Expiry Price (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>Buyer P&amp;L (\u20b9)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-82,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,510<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-77,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,520<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-71,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,530<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-66,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,540<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-60,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,550<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-55,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,560<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-49,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,570<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-44,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,580<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-38,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,590<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-33,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,600<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-27,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,610<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-22,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,620<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-16,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,630<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-11,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,640<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>-5,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,650<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>0<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,660<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>5,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,670<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>11,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,680<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>16,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,690<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>22,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,700<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>27,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,710<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>33,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,720<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>38,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,730<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>44,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,740<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>49,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,750<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>55,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,760<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>60,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,770<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>66,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,780<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>71,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,790<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>77,000<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>1,800<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"690\">\r\n<p><strong><b>82,500<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>Payoff Chart \u2013\u00a0It\u00a0is a straight line\u00a0that\u00a0goes\u00a0up\u00a0suggesting\u00a0that\u00a0these\u00a0are linear payoff instruments.\u00a0This\u00a0suggests that\u00a0for every\u00a0point\u00a0we\u00a0go\u00a0up\u00a0on\u00a0the\u00a0X-axis\u00a0(price),\u00a0we make\u00a0\u20b9550\u00a0profit.\u00a0Similarly,\u00a0for\u00a0every\u00a0point\u00a0we\u00a0go\u00a0down\u00a0on\u00a0the\u00a0X-axis,\u00a0we\u00a0lose \u20b9550.<\/p><\/div>\n<div id='text_slider_slide06' class='sa_hover_container' data-hash='Key-Takeaways' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2><strong>6.6 Key Takeaways<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-76118 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png\" alt=\"Key Takeaways\" width=\"444\" height=\"418\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png 444w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-300x282.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-50x47.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-100x94.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-150x141.png 150w\" sizes=\"(max-width: 444px) 100vw, 444px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<p><strong><b>1.Futures:<\/b><\/strong>\u00a0Leverage is the biggest attraction in futures. Futures enable the trader to take a much bigger position with a given quantum of capital thus enhancing the returns potential.<\/p>\r\n<p><strong><b>2.Spot vs Futures <\/b><\/strong>\u2013 Capital Utilization: In order to buy shares in the spot market, the trader has to\u00a0pay\u00a0full\u00a0amount while with futures he needs to put in only 15-25% as margin.<\/p>\r\n<p><strong><b>3.Leverage: <\/b><\/strong>For HDFC Bank, while a \u20b960 jump in prices would result in 3.6% return on the spot, it would generate a whopping 24.24% return on the future<\/p>\r\n<p><strong><b>4.Leverage is a double-edged sword:<\/b><\/strong>\u00a0While it magnifies the gains, it also magnifies the losses. Any adverse fluctuation in the prices can lead to a quick wipe out of the margin money<\/p>\r\n<p><strong><b>5.Calculation of Leverage<\/b><\/strong><\/p>\r\n<p>Leverage = Value of contract \/ Margin<\/p>\r\n<p>\u20b99,07,500 \/ \u20b91,36,125 = 6.67X<\/p>\r\n<p><strong>Risk Threshold<\/strong><\/p>\r\n<p>The % by which the price of the underlying would drop to wipe out the margin is given by: 1\/Leverage<\/p>\r\n<p>So, for the example above, it would be: 1\/36.3 = 2.75%<\/p>\r\n<p><strong><b>6.Regulatory Protections:<\/b><\/strong>\u00a0SEBI has mandated margin guidelines to protect the interests of the traders as well as investors. These guidelines ensure that neither the broker nor the trader takes undue risks<\/p>\r\n<p><strong>7<\/strong>.Linearity of Payoff: The profits\/losses on the futures contract are linear in nature and change in direct proportion to the change in price of the underlying. For every \u20b91 up\/down movement in the price of HDFC Bank, the trader makes\/losses \u20b9550<\/p>\r\n<p><strong>8.<\/strong>Zero Sum Game: In a zero-sum game the gains of one are offset by the losses of\u00a0the\u00a0other. The futures markets are a zero-sum game with no wealth being created<\/p>\r\n<p><strong>9.<\/strong>Futures Are Excellent for Short-Term Directional Views: For traders with a short-term view on the market, it is always better to buy futures.<\/p>\r\n<p><strong>10<\/strong>.While long-term investors might benefit more from buying in the spot market, the traders benefit immensely by using futures contracts.<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide07' class='sa_hover_container' data-hash='Fun-Activity' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2><strong>6.7 Fun Activity<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77015 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1.png\" alt=\"Fun Activity\" width=\"867\" height=\"1033\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1.png 867w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-252x300.png 252w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-859x1024.png 859w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-768x915.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-42x50.png 42w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-84x100.png 84w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/03\/Fun-Activity-1-150x179.png 150w\" sizes=\"(max-width: 867px) 100vw, 867px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<p>You have \u20b91,00,000 and want to trade HDFC Bank at \u20b91,650. Lot size in futures = 550 shares.<\/p>\r\n<p>Answer these quick questions:<\/p>\r\n<ul>\r\n<li>If you buy 60 shares in the spot market and the price rises to \u20b91,710, what is your profit and return %?<\/li>\r\n<li>If you buy half a lot (275 shares) in futures with margin \u20b968,062.50, and the price rises to \u20b91,710, what is your profit and return %?<\/li>\r\n<li>Which option gave you a higher percentage return?<\/li>\r\n<\/ul>\r\n<p><strong>Answers:<\/strong><\/p>\r\n<p>1.Spot Market \u2192 Profit = (\u20b91,710 \u2013 \u20b91,650) \u00d7 60 = \u20b93,600. Return = \u20b93,600 \u00f7 \u20b91,00,000 = 3.6%.<\/p>\r\n<p>2.Futures Market \u2192 Profit = (\u20b91,710 \u2013 \u20b91,650) \u00d7 275 = \u20b916,500. Return = \u20b916,500 \u00f7 \u20b968,062.50 \u2248 24.2%.<\/p>\r\n<p>3.Futures gave the higher return because of leverage.<\/p>\r\n<p><strong><b>\u00a0<\/b><\/strong><\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = jQuery('#text_slider');\n\t\tjQuery('.text_slider_goto1').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 0);\n\t\t});\n\t\tjQuery('.text_slider_goto2').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 1);\n\t\t});\n\t\tjQuery('.text_slider_goto3').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 2);\n\t\t});\n\t\tjQuery('.text_slider_goto4').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 3);\n\t\t});\n\t\tjQuery('.text_slider_goto5').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 4);\n\t\t});\n\t\tjQuery('.text_slider_goto6').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 5);\n\t\t});\n\t\tjQuery('.text_slider_goto7').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 6);\n\t\t});\n\t\tvar resize_21090 = jQuery('.owl-carousel');\n\t\tresize_21090.on('initialized.owl.carousel', function(e) {\n\t\t\tif (typeof(Event) === 'function') {\n\t\t\t\twindow.dispatchEvent(new Event('resize'));\n\t\t\t} else {\n\t\t\t\tvar evt = window.document.createEvent('UIEvents');\n\t\t\t\tevt.initUIEvent('resize', true, false, window, 0);\n\t\t\t\twindow.dispatchEvent(evt);\n\t\t\t}\n\t\t});\n\t});\n<\/script>\n<\/p>                    <\/div>\n\t\t        \n                    <div id=\"slides-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"slides-tab\">\n\t\t\t\t        <p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-11528 aligncenter\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png\" alt=\"\" width=\"612\" height=\"408\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png 612w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview-300x200.png 300w\" sizes=\"(max-width: 612px) 100vw, 612px\" \/><\/p>                    <\/div>\n\t\t        \n                    <div id=\"videos-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"videos-tab\">\n\t\t\t\t        <p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-11528 size-full\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png\" alt=\"\" width=\"612\" height=\"408\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png 612w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview-300x200.png 300w\" sizes=\"(max-width: 612px) 100vw, 612px\" \/><\/p>                    <\/div>\n\t\t                    <\/div>\n        <\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Study Slides Videos 6.1 Introduction To Pricing Of Futures Contract The futures instrument derives its value from its respective underlying. These instruments moves in sync with its underlying. If the underlying price falls, so would the futures price and vice versa. However, the underlying price and the futures price differs and they are not really &#8230; <a title=\"Leverage and Payoff\" class=\"read-more\" href=\"https:\/\/www.5paisa.com\/finschool\/course\/equity-derivatives-course\/leverage-and-payoff\/\" aria-label=\"Read more about Leverage and Payoff\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":21115,"menu_order":6,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"class_list":["post-21134","markets","type-markets","status-publish","format-standard","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/21134","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets"}],"about":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/types\/markets"}],"author":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/comments?post=21134"}],"version-history":[{"count":11,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/21134\/revisions"}],"predecessor-version":[{"id":77108,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/21134\/revisions\/77108"}],"up":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/21115"}],"wp:attachment":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/media?parent=21134"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/categories?post=21134"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}