This entry was posted on Tuesday, March 9th, 2010 at 10:28 pm and is filed under Futures Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Why derivatives are in lot sizes?
Why futures & options of stocks are in lot sizes? Why for each share contract is not allowed?
Suppose Reliance lot size is 75. Why 75. Why not 1? I mean, like in normal markets in F&O also contract size can be as low as 1. And it is traded like in normal equities. It gives more liquidity to the derivatives also.
Why it is not like that? Is it in India only? or all over world is it same?
If yes why?
Generally derivatives provide more flexibility for traders? (ofcourse its complex system to understand also) By making contract sizes what is the intention? Is it to avoid small investors/traders out of derivatives (as one may loss huge amounts)?
Is it only in the interest of small traders? If it is so, then why small investors/traders are allowed into the market? They should be allowed through mutual funds only.
By making lot sizes, small investors are not able to take advantage of market conditions. suppose dlf 1st month futures are trading 6-10% discount for the last 10-15 days. (that too 1 week a head of settlement day).
If a small investor wants to purchase100 shares if contract system is not like this he can purchase in futures.(remember 3rd month futures are at 15-18% discount)
I am not from economics background.
Thanx in advance
Because there are not enough "punters" foolish enough to trade in small volumes of derivatives, (which are primarily a hedge-tool for institutions) to merit "market makers" in the derivative market.
Remember I said that when you’ve lost enough money that you give up…
2 Responses to “Why derivatives are in lot sizes?”
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March 10th, 2010 at 4:07 am
Because there are not enough "punters" foolish enough to trade in small volumes of derivatives, (which are primarily a hedge-tool for institutions) to merit "market makers" in the derivative market.
Remember I said that when you’ve lost enough money that you give up…
References :
March 10th, 2010 at 4:18 am
I understand your disappointment that derivatives are not available in small size lots. But tell me one thing: if derivatives are available in lot of just 1 share, what will be the difference between equity share and derivatives? Why would anyone trade in equity share, if derivatives contracts will also be available in such a small lot?
The thing is that derivatives are not for everybody. They are for those, who have already bought equity shares and who want to reduce their risk of price change in adverse direction. Big lots are kept so that speculators can be kept away from the market.
References :