I have been a lot busy to write research articles on Nifty future and nifty options. Today I am sharing why should a trader trade in nifty futures and options. There are several advantages of trading in nifty future and nifty options. About 75% of the total turnover in the NSE F&O market is generated because of Nifty (that’s a huge volume). Nifty futures and options have highly liquid contracts and it is less volatile compared to stocks. Also trading in Nifty futures and Nifty options can benefit you in several ways. Nifty brings the odds in your favor.
The advantage of trading in Nifty future and Nifty Option:
1. Lower spreads:
The spread means bid-ask difference, it is the price difference in the quote of buyers and sellers. It is important for traders, especially for those who use scalping trade strategies. Lower the difference the lower will be the trading costs. As nifty futures and options are popularly traded, the bid-ask difference is relatively better. So trading in nifty thereby gives you better prices to buy or sell.
Have a look at the difference between buying and selling for nifty future. You will see it is just a 0.05 to 0.3 range, thanks to high liquidity.
2. Well diversified:
Nifty 50 index is well diversified, it consists of 50 stocks from more than 10 different sectors. This diversification provides stability and therefore protects you when your view goes wrong. Also, this diversification helps us to see the high-level view of the market in near and longer term.
For nifty future, the margin required to take a position is just 8%. Compared to stock futures required an average 13% of margin is to take positions. Some brokers offer a trade in nifty future with just Rs.5000 margin for intraday positions. Check here to open a trading account.
Highly liquid options:
Due to high liquidity in Nifty options, it becomes easy to research and take a trading call. You just need to study various Out-of-the money and In-the-money options along with open interest. These options can be used for hedging against your long or short positions.
Hedge against stock portfolio:
As Nifty being a benchmark index and most of the stocks reflect the same trend. The stocks most likely follows the Nifty movement, hence it can be used as a hedging tool against your portfolio. But hedging is for big traders having deep pockets. So small traders can exit if the market becomes really bad.
Far month liquidity:
As there is enough liquidity in far-month contracts of Nifty futures compared to stock futures. It becomes easy to take a positional view by buying next and far month Nifty contracts. One can execute complex trading strategies using the long and short combination on nifty future.
Easily to predict:
Tracking and predicting moves in nifty is easy as compared to stocks. As for nifty we can have to look at technical analysis charts. Nifty usually follows domestic and global market sentiments.
These are a few of the advantages of trading in nifty if you feel if I have missed any important then do comment.
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I am nifty futures trader, looking to start with options trading as well. Can you guide me in this area.
Nifty options strategy is not applicable for volatile market?
Dilip katira says
I want to know detail about nifty positional trading
Rishika Ahluwalia says
Nifty and certain Equity Futures are usually very liquid; therefore, through liquidity, there is a good chance that the trader will capture the price he seeks.
Bibhuranjan Nanda says
Is it safe to trade (selling)with far months nifty options with historical vix data.