Wikipedia of Finance - e-learning course on Futures Trading Wikipedia Chapter - What is Nifty Futures and How to Trade in Nifty futures with Examples

What is Nifty Futures and How to Trade in Nifty futures with Examples of Indian Market


Introduction to Nifty Futures:

Nifty futures has a very special place in the Indian derivative markets. It’s the most frequently traded futures tool, and in the Indian derivative markets; it has become the most liquid contract.

For Indian equity market, NIFTY 50 index is the benchmark stock market index of National Stock Exchange of India, Nifty is a wholly owned subsidiary of the National Stock Exchange Strategic Investment Corporation Limited. India Index Services and Products (IISL) owns and manages the same. There are agencies that provide their intra-day calling services to inform the traders about the current fluctuations of the market and help with stock buying and selling activities in Nifty, after a subscription.

How to Trade in Nifty Futures:

Nifty future is a part of Future Contracts; and Future Contracts are the part of the derivative products. Contract value is defined as the final negotiated or proposed price of a contract. Each and every contract has an expiration date of it. You can choose contracts either of one month or of three months contracts. Basic difference between stock market and futures is that, you pay actual cost to buy stocks in stock market whereas you pay only margin amount to trade in future market. Let us take an example to understand it better:

Example of Nifty Futures: Suppose you intend to purchase NIFTY future at value Rs. 8,000 with the lot size of 50; and Margin required to buy the Nifty future contract is 10%. Let’s calculate your contractual value of your Nifty future:

Formula to calculate future contract value:

Future Contract Value = Future Price * Lot Size

Future Contract Value = 8000 * 50

Future Contract Value = Rs. 4,00,000

Formula to calculate the buying value of future contract:

Futures Buying Value = Future Contract Value * Margin Required

Futures Buying Value = 4,00,000 * 10%

Futures Buying Value = Rs. 40,000

So finally, if you want to buy Nifty futures as per the given scenario then you will require Rs. 40,000 to purchase one lot of future contract in derivative market.

How Indian Stock Market Works?

A stock market can be defines as a place where commodities, equities and other assets are bought and sold. A stock market technically refers to an exchange of an individual, although the term is used often as a tailor in general for all the stock of a country. For example, the United States has the NASDAQ and the New York Stock Exchange, among many other smaller bags. Similarly, the major exchanges of India are the Bombay Stock Exchange and the NSE, better known as national stock exchange of India.

These markets account for most of the activity of the stock market in the India and function much likely to any other stock market modern, where buyers ordering of values through intermediaries, carrying out transactions. The demand for stocks and commodities change constantly and hence it the causes prices to fluctuate and the assets to gain or lose value.

The Bombay Stock Exchange is one of the largest markets of the world values, listing more than 4,500 companies. The SENEX is the main stock index of the Bombay Stock Exchange, comparable to the Dow Jones in the United States. The national values of the India stock exchange is also based in Mumbai (Mumbai formerly known as Bombay) and quoted regularly in amounts greater than of the stock exchange in Bombay. The main stock index of the national stock exchange of the India is the S & P CNX NIFTY or simply NIFTY. Besides equities, the NSE also focuses on future operations, debt and foreign currency.

India is a fast developing country that has the second largest population of the world behind China. Just as in China, the India has experienced rapid growth and expansion over the last two decades, due to the ability to leverage labor cheap, as well as a competitive advantage with technical education, English-speaking workers. In India, English is the adopted national language and is widely used in business and academia.

As such, the India is one of the principal places where the first world countries, like the United States and the United Kingdom subcontract work. Globalization and the rise of outsourcing have pushed its Indian securities markets higher in the mid-2000. As a developing country, the India stock exchanges follow quite closely to other emerging nations of Asia and they were especially affected by the global financial crisis in 2008, during which the SENEX shed more than 50% of its value in less than a year.


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