Reblog: 5 ways to Make money in Futures & Options

Derivatives or Futures and Options are leveraged instruments to trade in the stock market. There are broadly 3 groups of people who use derivatives-

Short term traders for making quick buck– most of them want to make a quick buck. Leveraged trading means, you can potentially make 100% returns from a 10% movement in the stock. 100% returns from a 10% move looks lucrative! The only issue is you can lose bigger amount if stock moves in opposite direction
Long term stock investors for hedging portfolio- these category of people may use derivatives for long term hedging of their portfolio or making some extra return on their stock holdings. They mainly use options. And, the idea is to hedge the portfolio, and not make great returns from short term trading
Long term investors who buy special long term options with a long term view- These include big investors including Warren Buffett and many others buying warrants, convertible debentures, long term calls etc.

Majority of people who trade in derivatives come in the first category. More than 95% of traders lose money. Mostly these are young people who get job in corporate companies, open a new demat account and want to make some quick money. They are replaced by new traders (as new graduates complete college and get job). The cycle repeats.

Here is an interview of Nithin Kamath where he mentions –

“Why choose Bangalore? Couldn’t Zerodha have made it bigger by being in those hotbeds of trading — Mumbai or Ahmedabad? “It’s a myth that all the stock market trading is happening out of Mumbai or Ahmedabad. If Bangalore or Chennai had Mumbai’s population, we would have as many traders here too,” he laughs. Trading stocks, commodities and currencies, he says, is quite the rage with the salaried IT crowd in these two cities of the South. “Every month, your trading ‘fund’ gets replenished by your salary,” he says”

This article by Prashanth Krish, who has spent decades in Brokerage industry, confirms that more than 95% of traders lose money

So, how to make big and safe money in derivative trading. There must be a way out. Yes, there are many ways, and people in India and outside are making huge money from derivatives trading. Here is how-

Open a Brokerage firm- Nithin Kamath realized that trading doesn’t make much money but starting a brokerage firm for traders will make it big. Within a few years, his brokerage firm Zerodha is valued at several Thousand Crores. He charges brokerage only from derivative trades. An inspiring story on how to make Big Money from Derivatives – https://yourstory.com/2012/11/zerodha/
Become a sub-broker- If you don’t have enough money to start your own brokerage company. You can start small, and become a sub-broker. Several people on Twitter have this Modus operandi. They suggest trades for no charge, and make good money from brokerage
Workshops- You can do workshops on derivative trading and sell seats for a certain amount, which is not big for an individual like 10k, but is good enough for you with a size of 40 people in one day. This idea is well known in the western world, and Indian traders have recently started copying the idea
Sell trading Softwares / Data- Software sellers, data sellers again have a guaranteed income. If your software hits it big like Amibroker, you can again make several thousand crores
Start a Newsletter / Tip service– This is the easiest one. Divide your potential clients in 2 groups- Tell one group to go long on Nifty for coming days, and tell other group to short nifty for coming few days. You will be God for 1 group. Again divide the first group into 2 parts. Repeat the process. After 2-3 consecutive hits with 1 group (due to sub-division), the people in the group will be ready to pay you whatever you ask!