Save Transaction Cost using Synthetic Future - FIST

Hello Friends !!!

Greetings from FinIdeas !!!
Transaction Cost is a significant cost in Trading. Lower transaction cost leads to higher ROI for trader. Let us see how a synthetic future can save the transaction cost.

For Example :
Nifty Price = 8000 || Lot Size = 50 || 8000 Call Option = Rs. 120 || 8000 Put Option = Rs. 120

Formula for Synthetic Future

  • Synthetic Long Future = Buy Call + Sell Put(of same Strike)
  • Synthetic Short Future = Sell Call + Buy Put (of same Strike)

Cost Calculation

  • Transaction Cost for buying and selling Future = Rs 1.45 (approx.) per Lot
  • Transaction Cost for buying and selling Synthetic Future = .27 paise (approx.) per Lot
  • Cost saving is around 81 %. Saving improves further, as when days approaches expiry Option Cost reduces but Future Cost remains the same
  • A trader trading around 50000 Qnty in future in a month will save him Rs. 50000 (approx.) as transaction cost per month.
  • Remember for a trader even cost saving is also his profit.
  • Synthetic Future is recommended to be used only for Nifty Trading because of high liquidity and lower impact cost.

Strategies in which we can use Synthetic Future

  • Volatility Spread Trading
  • Volatility Trading
  • ITM Options Trading
  • PCP Trading
  • Volatility Difference Butterfly
  • Any Auto-Delta Neutral Strategy
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