Fundamentals of the Index Futures.

Check out this article which will serve as a useful guide to trading in Nifty Future, keeping in mind the Nifty Future Tips. Find out their significance in today’s market.

Fundamentals of the Index Futures.

The Nifty Futures has a very special place within the Indian Derivatives World. In the Indian Derivative Market, the Nifty Futures is the most liquid contract as it is the most widely traded futures instrument. Also, if you go through the top 10 index futures contracts traded in the world, Nifty Futures easily occupies one of the top spots in them. You also would be actively trading the Nifty Futures, once you get comfortable with futures trading with the aid of Nifty Future Tips.

The futures instrument is basically a derivative contract that procures its value from an underlying asset. The underlying is the index itself, when Nifty Futures is taken into consideration. Thus, we can say it is the nifty index from where the nifty futures derives its value. Thus, if the value of Nifty Index rises, the value of Nifty Futures also rises. And, likewise, if the value of Nifty Index declines, so would the Index Futures.

 Does it really makes sense to trade in Nifty?

Do you know that the Nifty Index is a basket of 50 stocks? In order to represent a wide section of the India economic sectors, these stocks are specifically selected. Thus a good representative of the broader economic activity in India, is undoubtedly nifty. Thus the Nifty value will only go up if the general economic activity also goes up, or at least expected to go up, and vice versa. Therefore, trading in Nifty Futures keeping in mind the Nifty Future Tips, is obviously a better choice when compared to single stock futures. Just scroll through to know some of the prime reasons for the same.

(1) Diversified: From the risk perspective, it sometimes becomes a tough task to take a directional call on a single stock. For instance, you decide to buy Infosys Limited with the expectation that the quarterly results would be good. But, in case the markets are not impressed by the results, the stock would definitely take a knock and thus would your P&L. On the contrary, a diversified portfolio of 50 stocks is present in Nifty Futures. The movement of the Index does not really depend on a single stock, as it is a portfolio of stocks. Yes it’s possible that a few stocks might be influenced by Nifty to some extent occasionally, but not on an everyday basis. You completely eliminate the “Unsystematic Risk” and deal only with the “systematic risk” when you trade Nifty Futures in adherence with the Nifty Future Tips.

(2) Difficult to man oeuvre: The movement in Nifty is a response to the collective movement in the top 50 companies in India, which mainly depends on market capitalization. Thus, manipulating the Nifty Index has virtually no scope. But, when considering individual stocks, the same cannot be said.

(3) High Liquidity(easy fills, less slippage): You can literally transact any quantity of Nifty following the Nifty Future Tips, without worrying about losing money on the impact cost, as Nifty is highly liquid. Also, you can literally transact any number of contracts that you wish, as there is so much liquidity.

(4) Lesser Margins: When compared to individual stock futures, Nifty Futures require much less margins. To give you an initial idea, Nifty’s margin requirement varies between 12-15 %, however individual stock margins can go as high as 45-60%.

(5) Wider Economic Call: You need to take a broad based economic call rather than company specify directional calls, while trading the Nifty Futures, following Nifty Future Tips.

(6) Application of Technical Analysis: When it comes to liquid instruments, Technical Analysis works the best. Liquid Stocks usually move on the demand supply dynamics of the market, which is why they are quite hard to manipulate.

(7) Less Volatility: When compared to individual stock futures, Nifty Futures are less volatile. To get an idea, Nifty Futures has an annualized volatility of around 16-17%, whereas individual stocks like Infosys has annualized volatility of upwards of 30%.

Final Thoughts:

Now, that you have a better idea as why should you really trade in Nifty, why wait? Start trading in Nifty Future today, while keeping in mind the Nifty Future Tips.