Strategies for Trading on Budget Day

Strategies for Trading on Budget Day 

strategies for trading on budget day 

Introduction:

Budget Day in India is a pivotal event that captures the attention of investors, businesses, and citizens alike. It is a day when the government unveils its financial roadmap for the upcoming fiscal year, outlining its expenditure plans, revenue expectations, and policy initiatives. The Union Budget, presented annually, plays a crucial role in shaping the economic landscape of the country.

As you’ve already seen above, here are a few things that you should keep in mind when trading during budget day.

1. Account for increased volatility. 

The announcements and developments of the Union Budget essentially lay the groundwork for the upcoming fiscal year. As a result, investors and the stock market often keep a careful eye on each other. Because of this, every news on the budget—positive or negative—tends to increase volatility.

Consequently, there may be extreme swings in the price of stocks on either side of the market. When attempting to trade on budget day, you would need to take this into consideration. If you discover that the level of volatility is excessive, it is advisable to hold off on making any more transactions. 

2. Spend the day purchasing stocks that have strong fundamentals.

The stock market usually reacts unfavorably if the budget announcements prove to be unfavorable to investors. Increased volatility combined with this negative response may potentially cause brief but significant sell-offs. The normal investor may find all of this to be somewhat frightening, but you may take advantage of this circumstance.

You can take advantage of this chance to purchase fundamentally sound stocks at discounted prices if there is a stock market sell-off. By now, you should be aware that the stock market always recovers. After the market eventually recovers, you can benefit handsomely from the sale of your stocks.

3. Be cautions with futures options.

Options and futures contracts are examples of derivatives that are excellent for generating quick gains. They often have a quite high risk to return ratio, though. The risk-to-reward ratio increases even further on budget days. Sometimes the danger is even greater than the profit, depending on the situation.

Thus, it is advised that you proceed with extreme caution if you want to trade derivatives on budget day. The higher volatility might cause the contract prices to fluctuate dramatically, which would exacerbate your losses. Applying rigorous stop losses to all derivative contracts is one method to combat this. In this manner, whatever losses you may have won't break the bank.

4. Use option strategies.

If you continue to trade in derivative contracts despite the higher risks, you should employ spreads and options methods. These will assist you in reducing the amount of money you lose as a result of market fluctuations and increasing volatility. It is important for you to be aware of this, though.

The amount of gains you may make is sometimes limited by options techniques and spreads, even while they can help you reduce your losses. So, while utilizing these trading strategies, it is something you would need to consider. Check out the other Smart Money modules for further information on the various options strategies and spreads available.

5. Maintain limit orders.

This is yet another important piece of advice that will be very helpful to you while trading on budget day. Putting market orders may be highly harmful because there is a greater chance of huge price movements on the day. Due to heightened volatility, the price may have changed dramatically by the time a market order is made and carried out. This may result in significant losses.

Instead, you can reduce this risk by putting limit orders. You don't have to worry about being forced to accept a price that you don't like because these orders are only performed within the specified price range. Limit orders always carry some chance of not being executed, but that risk is far lower than having to absorb a loss as a result of volatile price fluctuations.

Final Thoughts

Presentations of the Union Budget are nearly often dramatic, which can cause significant market reactions. As a result, it's critical to always be ready for everything. By carefully adhering to the advice provided above, you may safeguard yourself from losses and increase your chances of making money.