The Nifty Futures have a unique niche in the Indian derivatives market. The most extensively traded futures instrument is the ‘Nifty Futures,’ making it the most liquid contract in the Indian derivative markets. Nifty Futures is clearly one of the top 10 index futures contracts traded in the world, which may surprise you. I’m sure that once you’re familiar with futures trading, like many of us, you’ll be actively trading the Nifty Futures. As a result, it would be prudent to gain a full understanding of Nifty futures. But, before we go any farther, I’d like you to refresh your memory on the Index, which we reviewed previously.
I’m going to presume you have a decent comprehension of the index, therefore I’ll go on to discussing Index Futures or Nifty Futures.
The futures instrument, as we all know, is a derivative contract whose value is derived from an underlying asset. The underlying in the case of Nifty futures is the Index itself. As a result, the value of the Nifty Futures is derived from the Nifty Index. This means that if the Nifty Index rises in value, so will the value of Nifty futures. Similarly, if the value of the Nifty Index falls, so do the Index futures.
Nifty Futures, like any other futures contract, comes in three flavors: current month, mid-month, and far month. For your convenience, I’ve highlighted the same in red. I’ve also highlighted the Nifty Futures price, which was Rs. 11,484.9 per unit of Nifty at the time of this snapshot. The underlying value (spot value of the index) was Rs. 11,470.70. Of fact, because of the futures pricing mechanism, there is a discrepancy between the spot and futures prices. In the following chapter, we’ll learn about futures pricing concepts.
The margin requirements for trading Nifty Futures are as follows: To calculate the margins, I utilized the Zerodha Margin Calculator
These details should provide you with a basic understanding of Nifty Futures. The liquidity of Nifty Futures is one of the primary qualities that makes it so popular. Let us now look at what liquidity is and how it is measured.
What is the distinction between the Nifty 50 and the Nifty Future?
1. What is the difference between Nifty futures and options? Nifty futures are contracts that allow the buyer or seller the right to buy or sell the Nifty 50 index at a specified price at a future date. Call and put options are the two forms of nifty options.
Nifty futures or options: which is better?
Futures will generate higher earnings if you are absolutely persuaded about a path. 3. The lot size for Nifty futures is currently 50, and the lot size for Nifty options is also 50. If the Nifty lot size changes, it will affect both futures and options, but it will always be the same.
What is the formula for Nifty futures?
The current lot size for the nifty future is 75 quantities. The current trading price of the nifty future is 9800. If any traders decide to take long positions in the nifty futures at 9800 with a stop loss of 9750 and a target of 9900, they should do so.
The total value of one future contract is calculated as follows: Nifty current price 9800 * current lot size 75 = 7, 35, 000/-. The exchange has set an 8 percent margin for a nifty future contract, which means that the money needed to buy or sell one nifty future lot will be 8 percent of 7, 35,000/-, or 58,800/- rupees.
Traders must pay only the premium amount when buying nifty options; there will be no margin scenario when selling nifty options. Traders must pay nifty future margin plus nifty premium when selling nifty options.
For example, if the nifty 9800 call option is trading at 100 rupees, traders must spend = nifty options premium 100 rupees * 75 quantity lot size = 7500 rupees to purchase 1 lot of the nifty 9800 call option.
Traders must pay about = nifty future margin of 58,800/- + 7500 rupee premium amount = 66,300/- rupees to sell the identical nifty options contract.
Nifty futures buy call 9800 to 9900 made a profit of +100 points, with each point worth 75 rupees. So, if the nifty buy position hits its target of 9900, the trader will profit by 100 points. * Lot size of 75 quantities Equals 7500 rupees each lot. If a trader’s stop loss is struck at 9750, the stock will lose 50 points. * Lot size of 75 quantities = 3750 rupees each lot. The same can be said about clever options.
Is it risky to invest in Nifty futures?
Because the Nifty is fairly indicative of the market and the economy in general, investing in Nifty futures is a typical proxy for trading the market as a whole. Nifty futures are simply Nifty futures contracts. The Nifty’s minimum lot size is 75 units, putting the lot value at just over Rs.7.50 lakhs. What are the best strategies for trading Nifty futures and how do you trade Nifty futures? Let’s go over some key points to keep in mind as we learn how to trade Nifty futures intraday and in the long run.
Futures typically trade at a discount to spot prices. The monthly spread over the spot price is established by the current cost of funds under normal circumstances. Futures typically quote at a premium to the cost of carry, which is also known as the cost of carry. There are two things to keep in mind here. If Nifty futures are trading at a significant premium over the spot index, it could be a sign of overpricing and overconfidence. Also, don’t buy when the Nifty futures are trading at a discount, as this could indicate strong futures selling. Before trading Nifty futures, you need understand the spread’s logic.
Nifty futures, like all futures contracts, are leveraged. Your margin is roughly 10% for normal trading and 5% for MIS (intraday) deals when you buy one lot of Nifty in the next month. That means a conventional trade is 10 times leveraged, whereas intraday trades are 20 times leveraged. This is true in both directions. Profits can be multiplied by leverage, but losses can be multiplied as well. As a result, any trading in Nifty futures must follow rigorous stop-loss and profit-target guidelines.
Before buying Nifty futures, it’s always a good idea to undertake some scientific data research. A brief examination of the Nifty futures open interest and accumulation trends will reveal if the open interest is rising on the long or short side. You can gain a better understanding of the Nifty’s direction.
Because the Nifty futures is one of the most liquid products, liquidity is never a huge issue, but there are times when the Nifty futures might get you into a liquidity bind. To begin with, after the rollovers are significantly finished on the expiry day, the volumes on the Nifty futures usually vanish. Furthermore, in a market that is rapidly declining, spreads can widen dramatically, increasing your risk when trading Nifty futures.
Buying or selling Nifty futures is a linear position since it can result in endless profits and losses on both sides. When trading the Nifty, stop losses are essential, but one must also be aware of the margins. To begin, you must pay an initial margin, which includes the VAR and ELM margins, at the time of taking the position. Brokers must now collect both of these margins, and ELM is no longer an option. Second, you must pay MTM (mark to market) margins based on price change on a daily basis. These have an impact on your capital allocation.
Even if you place stop losses throughout the day, they will not cover the danger you face overnight. What do you do, for example, if you are long on Nifty Futures and the Nifty drops 200 points on opening owing to a Dow crash? Stop losses don’t operate in Nifty futures, so you’re exposed to overnight risk.
This is an intriguing feature of trading Nifty futures. When you buy Nifty futures, another party is selling, and when you sell Nifty futures, the same rationale applies. The other party could be a trader or a hedger, and open interest data will provide you with the information you require. While your Nifty view is typically what drives you, it is always beneficial to comprehend the opposing view because it can help you clarify your Nifty vision. When dealing in Nifty Futures, there are eight factors to keep in mind.
When trading Nifty futures, keep in mind that you are risking real money, thus three factors are crucial. For starters, futures do not pay dividends, hence dividends cause futures to trade at a discount. Consider this when making a decision. Second, there are brokerage and statutory charges to consider when trading Nifty futures. This has an impact on your breakeven point. Finally, because Nifty futures are classified as securities for tax purposes, any profit or loss will be treated as a capital gain or loss, with the corresponding tax implications.
How do you go about trading futures?
Futures trading allows investors to speculate or hedge on the price movement of a securities, commodity, or financial instrument. Traders do this by purchasing a futures contract, which is a legally binding agreement to buy or sell an asset at a predetermined price at a future date. Grain growers could sell their wheat for forward delivery when futures were invented in the mid-nineteenth century.
In Zerodha, can I carry forward futures?
Any futures or options you buy will have an expiration date (last day until which you can trade that contract). So, for example, until May 27, 2021, you can only trade the Nifty 27 May future. What if you wish to hold on to a profitable futures contract until the end of June?
In this case, you’ll need to exit the Nifty May future and enter a new one in the June future, which will be good until June 24, 2021. The act of moving your position from one month to the next is known as rolling over. This rollover can be performed at any time until May 27, 2021, when the market closes.
When Nifty futures expire, what happens to them?
Contracts for the future You can buy another futures contract to sell 1000 shares of XYZ firm on the expiration date. The first contract to sell the shares is nullified by this new deal, which remains in effect. You would have to settle the price discrepancy, if any, in such circumstances.
What are options and futures?
Both futures and options (F&O) are considered “derivative products.” A futures contract is a contract to purchase or sell an underlying stock or other asset at a fixed price on a particular date. On the other hand, an options contract gives the investor the option to purchase or sell assets at a specified price on a specific date, known as the expiry date, but not the responsibility to do so.
Stocks that are traded directly in the market and are affected by market and economic conditions are familiar to us. Derivatives, on the other hand, are instruments with no intrinsic value. They function similarly to a bet on the value of existing instruments such as stocks or indexes. As a result, derivatives are indicative of the price of their underlying securities since they allow you to take a position based on your forecast of its future price.
What are futures commissions?
Futures and options on futures contracts have a cost of $2.25 per contract, plus exchange and regulatory fees. Exchange fees may vary depending on the exchange and the goods. The National Futures Association (NFA) charges regulatory fees, which are presently $0.02 per contract. Is it possible to day trade futures?