Understand the purpose

Everything you do in in the markets must have a purpose. And no, I don’t mean it in the philosophical sense.

If you are investing in mutual funds, usual purpose is to meet future financial goals. If you are trading, you are trying to profit off of market inefficiencies.

No matter what instrument you use, making money is your end goal. If you can make it without ever touching futures, options and intraday trading, how does it matter? Attempts to catch bottoms to buy or tops to sell are done for bragging rights more than making money. You could have caught bottom of Coal India at Rs. 110 mid-October and be up about 10%. Someone who simply bought Kotak Mahindra Bank on the same day because it looked like it would resume its uptrend would be 45% up today. Catching bottom means nothing if you can’t make money from it.

Understand the purpose of FnO as well. One of which is the leverage. You can trade in several hundred shares while paying for only a part of them upfront. Another one is expressing market views which can’t be expressed in any other way. For example, extended sideways movement can be cashed in effectively by option selling. Shorting can’t be done in cash market, and hence must be done using futures or options. Decide instruments based on your strategy and not the other way around.

Make perfectly clear to yourself why you are in the markets. If it is to sound smart by saying words like Iron Condor, long unwinding, head and shoulders, there are a million other ways of sounding smart without risking your capital. If you are in it to make money, take the simplest route available to you. There are no points for taking a tough path and failing.

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