Futures Trading in India has been changed drastically after the introduction of Bank Nifty weekly option.
Liquidity is getting dried up in Futures and Liquidity in options is increasing. If you check the Top 20 contracts that gets traded daily in NSE exchange, you will find the both Nifty & Bank Nifty futures always at the last spot. The remaining top 18 positions are held by Index options.
More and more traders focus on options now as it requires lesser capital than futures. Due to this, liquidity in futures is getting lower and spreads becoming wider, which in turn increases slippages.
Look at the market depth window for Bank Nifty futures, the spreads are more than 0.02%. Let me tell you how a transaction cost in futures trading can have big dent.
Lets consider you wanted to buy and sell bank nifty futures for 25 points profit.
Even though brokerage is very minimal, there are other cost like Exchange Transaction charge, STT, Stamp Duty, GST, SEBI fee which are relatively higher.
If someone buy Bank Nifty at 25000 and sells at 25025, he makes Rs.1000 Gross profit. But if you deduct all above charges and include slippages, you end up with NET profit of only Rs.260. You end up paying 75% of your gross profit as charges.
So with regards to futures trading, the key here is Average profit per trade, make this always as high as possible.
Instead of 25 points profit, if I sell it for 100 points profit, look how much I made.
Only 18% of gross profit goes as transaction cost. Recently, there was tweet from Ashwani Gujral where he posted P&L statement of 2.5 Cr. profit.
But if we calculate average profit per trade, it is very minimal, he has ended up paying more than 1.5 Cr as transaction cost. (But still he is profitable, no doubt in that 🙂 )
So making 6 to 7% every month in futures trading is extremely difficult, considering such high transaction cost.