Trading in Equities with VERTEX truly empowers you for your investment needs. A highly process driven, diligent approach backed by powerful Research & Analytics and one of the “best in class” dealing rooms ensures that you have a superlative experience. Further, VERTEX also has one of the largest retail networks, with its presence in more than 500 locations across more than 180 towns & cities. This means, you can walk into any of these branches and connect to our highly skilled and dedicated relationships managers to get the best services. You could also choose to enjoy the freedom to execute your own trade through our online mechanism.

Equity

Equity is a share in the ownership of a company. It represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company increases. The terms share; equity and stock mean the same thing and can be used interchangeably.

Holding a company’s stock means that you are one of the many owners (shareholders) of a company, and, as such, you have a claim (to the extent of your holding) to everything the company owns. Yes, this means that technically, you own a portion of every piece of furniture; every trademark; every contract, etc. of the company.
As an owner, you are entitled to your share of the company’s earnings as well as any voting rights attached to the stock.

Another extremely important feature of equity is its limited liability, which means that, as a part owner of the company, you are not personally liable if the company is not able to pay its debts. In case of other entities such as partnerships, if the partnership goes bankrupt, the partners are personally liable towards the creditors/lenders and they may have to sell off their personal assets like their house, car, furniture, etc., to make good the loss. In case of holding equity shares, the maximum value you can lose is the value of your investment.
Even if a company of which you are a shareholder goes bankrupt, you can never lose your personal assets.

Futures

A future, in financial terminology, is a financial contract that obligates the buyer (seller) to purchase (sell and deliver) financial instruments or physical commodities at a future date, unless the holder's position is closed prior to expiration. Mutual funds and large institutions to hedge their positions when the markets are rocky, preventing large losses in value, often use futures. The primary difference between options and futures is that options provide the holder the right to buy or sell the underlying asset at expiration, while futures contracts holders are obligated to fulfill the terms of their contract.

What are forward contracts?

A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future date. Therefore, the trade date and delivery date are separate. Beside other instruments, such as Options or Futures, it is used to control and hedge risk. For examples, currency exposure risk (e.g. forward contracts on USD or Rupee) or commodity prices (e.g. forward contracts of oil). The forward price will usually give a good market estimation of the price in the future.

One party agrees to buy, the other to sell, for a forward price agreed in advance. In a forward transaction, no actual cash changes hands. If the transaction is collaterised, exchange of margin will take place according to a pre-agreed rule or schedule. Otherwise, no asset of any kind will actually change hands until the maturity of the contract.

The forward price of such a contract is commonly contrasted with the spot price, which is the price at which the asset changes hands (on the spot date, usually the next business day). The difference between the spot and the forward price is the forward premium or forward discount. A forward contract is the simplest mode of a derivative transaction. No cash is exchanged when the contract is entered into.

The main features of a forward contract are:

What are futures contract?

A futures contract is a form of forward contract, a contract to buy or sell an asset of any kind at a pre-agreed future point in time, that has been standardized for a wide range of uses. It is traded on a futures exchange. Futures may also differ from forwards in terms of margin and delivery requirements.

The standard terms in any futures contract are:

For example: Suppose in April 2005, you are dealing in a Wipro futures contract and you know that the market lot, i.e., the minimum quantity you can buy or sell, is 1200 shares. The contract expires on April 28, 2005 (price being quoted per share) and the tick size is 5 paise per share resulting to (1200*0.05) = Rs60 per contract/ market lot. The contract would be settled in cash and the closing price in the cash market on expiry day would be the settlement price.

Since they vary in price as a direct function of these variables only, a futures contract is an example of a parametric contract and is easily combined or traded as part of more complex financial derivatives deals. Although the value of a contract at time of trading should be zero, its price constantly fluctuates. This renders the owner liable to adverse changes in value and creates a credit risk to the exchange. To minimize this risk, the exchange mandates that contract owners post a form of collateral, known as margin. The amount of margin changes each day, involving movements of cash handled by the exchange's clearing house.

Margin requirements are waived or reduced in some cases for hedgers who have physical ownership of the covered commodity or spreaders who have offsetting contracts balancing the position.

Initial margin is paid by both buyer and seller. It represents the loss on that contract, as determined by historical price changes, that is not likely to be exceeded on a usual day's trading. The price of a future is determined via arbitrage arguments.

What is the difference between a forward and a futures contract?

The differences are many and substantive:

What are index futures?

The derivatives market index run on the underlying stock/equity index. While there are many indices at both BSE and NSE and other exchanges around the country, only the 30 share BSE

Sensex and the 50-share NSE S&P Nifty index can legally deal in the derivative market index. A thorough understanding of the underlying index is necessary to deal with stock index futures. Choosing the right index is important for selecting the right contract for speculation or hedging. Since for speculation, the volatility of the index is important whereas for hedging the choice of index depends upon the relationship between the stocks being hedged and the characteristics of the index, choosing and understanding the right index is important, as the movement of stock index futures is quite similar to that of the underlying stock index.

Volatility of the futures indices is generally greater than spot stock indices. Every time an investor takes a long or short position on a stock, he also has a hidden exposure to the Nifty or Sensex. Generally, stock values fall in tune with the entire market sentiment and rise when the market as a whole is rising.

Retail investors will find the index derivatives useful due to the high correlation of the index with their portfolio/stock and low cost associated with using index futures for hedging.

Index futures are all futures contracts where the underlying is the stock index (Nifty or Sensex) and helps a trader to take a view on the market as a whole.

Index futures permits speculation and if a trader anticipates a major rally in the market he can simply buy a futures contract and hope for a price rise on the futures contract when the rally occurs.

In India, we have index futures contracts based on S&P CNX Nifty and the BSE Sensex and near 3 months duration contracts are available at all times. Each contract expires on the last Thursday of the expiry month and simultaneously a new contract is introduced for trading after expiry of a contract.

Let's understand the index futures concept with a general example. After listening to the news and other occurrences in the economy, you take a view that the market would go up. You substantiate your view after talking to your near and dear ones. When the market opens, you express your view by buying XYZ stock. The whole market goes up as you expected but the price of XYZ stock falls due to some bad news related to the company. This means that while your view was correct, its expression was wrong. Using Nifty/Sensex futures you can express your view on the market as a whole. In this case you take only market risk without exposing yourself to any company specific risk. Though trading on Nifty or Sensex might not give you a very high return as trading in a stock can, yet at the same time your risk is also limited as index movements are smooth, less volatile and devoid of unwarranted swings.

Options

An option is a privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date. Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.

What are the types of Options?

There are two types of Options: 1) Call Option 2) Put Option

Call Option:

A call option is a financial contract between two parties. The buyer of the option has the right but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying instrument) from the seller of the option at a certain time for a certain price (known as the strike price). The seller assumes the corresponding obligations.

"Selling" in this context is not the supplying of a physical or financial asset (the underlying instrument), rather it is the granting of the right to buy the underlying, against a fee - the option price or premium.

Exact specifications may differ depending on option style. However, options are traded on many other financial instruments such as interest rates as well as on physical assets like gold or crude oil.

Let's take an example: A Satyam 260 Feb call option gives the buyer the right to buy Satyam at a price of Rs 260 per share on or before the last Thursday of February. The call option seller is under the obligation to deliver shares whenever the call option buyer exercises his right. Call options are also called teji in the Indian markets.

Put Option

A put option is a financial contract between two parties. The put allows the buyer the right but not the obligation to sell a commodity or financial instrument (the underlying instrument) to the seller of the option at a certain time for a certain price (the strike price). The seller assumes the corresponding obligations.
Note that the seller of the option undertakes to buy the underlying. In exchange for being granted this option, the buyer pays the seller a fee.
Exact specifications may differ depending on option style. An European put option allows the holder to exercise, i.e. to sell, on the delivery date only. An American put option allows exercise at any time during the life of the option.
Exact specifications may differ depending on option style. However, options are traded on many other financial instruments such as interest rates as well as on physical assets like gold or crude oil.
Let's take an example: Suppose you have the right to sell 1000 shares of Satyam at Rs. 140 per share on or before April 28, 2002. In other words you are a buyer of a put option of Satyam. The option gives you the right to sell 1000 shares. The seller of this put option who has given you the right to sell to him is under obligation to buy 1000 shares of Satyam at Rs. 140 per share on or before April 28, 2002 whenever asked. Put options are also called mandi in Indian markets.