Nifty 50 is an Indian stock market index representing the weighted average value of 50 stocks. Although there are many Indexes in the Indian stock markets, the Nifty is highly popular amongst the trading community. Nifty is traded in the form of derivatives not only on NSE but also traded in Singapore on SGX.
Nifty Futures sees a significant amount of online trading from retail and institutional investors. Nifty is considered to be a good indicator of the market's position.
If you intend to take up trading in Nifty Futures, it would be wise to keep the following points in mind -
7 Important Factors To Keep In Mind When Trading In Nifty Futures:
1) Nifty Futures expiry date
2) Price ticks
3) Order types
4) Futures trade at a spread
5) MTM margins
6) Overnight positions need adequate monitoring
7) Be aware of taxation rules
1) Nifty Futures expiry date:
Nifty Futures contracts are traded on monthly expiry dates. They have a cycle of three months. The 'near month' is the current month. Then you have contracts for the 'next month'. Finally, there are contracts for 'far month', which would be the month after the 'next month'.
Each month's contract expires on the last Thursday of the month. In the event of the last Thursday being a holiday, it would expire on the previous trading day.
2) Price ticks:
The Nifty Futures contract moves in either up or down direction with a step of 5 paise.
3) Order types:
Any Online Trading App allows orders for Nifty Futures in the following types.
- Regular lot order
- Stop-loss order
- Immediate or cancel the order
- Spread order
4) Futures trade at a spread:
The Nifty Futures prices are usually quoted at a premium to their spot price. This is known as the 'cost of carrying'. This spread increases as the month progress. So typically, the Nifty Futures price for 'near month' will be higher than the current market price. For the 'next month,' it would be higher than the 'near month' and so on for the 'far month'.
5) MTM margins:
When you enter into a Nifty Futures contract position, you need to pay an initial margin. Also, as you keep holding the position, an additional margin may be required due to the price movement of the index. Such margins are known as mark-to-market margins.
Traders should arrange for adequate funds in their trading accounts to cover these margins to avoid default and risk penalties.
6) Overnight positions need adequate monitoring:
When you hold Futures contracts for overnight positions, the stop loss feature becomes ineffective. In case of gap-up or gap-down openings on the next day, the holding position can become tricky to manage. Hence it is crucial to enter into trades only with full conviction.
7) Be aware of taxation rules
Like any other gains, trading-related gains from Nifty Futures also attract the Taxman's attention. You should be fully aware of the taxation schedule before entering into the trade.
It is possible to buy as well as sell Nifty Futures. This allows you to take up 'long' or 'short' positions in the market as per your convictions. If you see the market rising in the future, you could 'buy' contracts. If there is a belief of markets falling, you can 'sell' the contract.
Nifty Futures are an effective tool for shorting the market. So whatever your views, Nifty Futures can help you take up market positions accordingly.
The main thing to note is that these positions come with the possibility of a reasonable profit and the risk of a significant loss. So one should be fully aware of all factors while going into the trade.