Nifty futures are a derivative contract, meaning that they derive their value from the behavior and assets it underlying. The Nifty50 index is the underlying asset of Nifty futures. The futures contract's value will increase if the index is valued higher. The Nifty futures contract will also drop if the Nifty index falls. Nifty50 futures give either the buyer or seller the right to trade stocks on the Nifty50 index at a fixed price on a future date. It is one of India's most liquid futures contracts, making it the most traded.
There are two types Nifty Options: put and call. Nifty calls give traders the opportunity to purchase an index with Nifty security at a predetermined value and within a specified timeframe. A Nifty put, on the other hand, gives trader the opportunity to sell Nifty indexes at a predetermined price within a specified timeframe.
Without explaining the workings of Nifty futures, it is difficult to understand what they are useful for. Here's an example. Let's say Amrita expects Nifty to rise from the current trading price of Rs10,700. She can purchase 75 shares by placing a margin at a fraction of the contract cost. These shares are now available to Amrita from Bharat for Rs10,000.
Let's assume Amrita was right and the shares' performance rises to Rs10 800. Amrita can now purchase shares from Bharat for Rs10 700 and resell them at Rs10 800 because she used a Nifty Call. She will receive Rs100 in options premium income and 75 shares, which adds up to Rs7500 from the sale. Bharat can sell Nifty futures to Amrita at Rs10,000. However, each share she buys will incur a Rs100 loss.
These are the key features of Nifty Futures.
These are some helpful tips for trading Nifty Futures.
Track additional costs: When you trade with Nifty futures there are statutory as well as brokerage fees. These costs can make a big difference in your breakeven. Not to be confused with capital gains and capital losses, profit or loss from Nifty futures can be treated as capital gain or loss. Capital gains from market instruments have tax implications, which is an additional cost. These additional costs can help you save money over the long-term.