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NIFTY / INDEX FUTURES

A FUTURES CONTRACT IS A DERIVATIVE PRODUCT WHOSE VALUE DEPENDS ON THE UNDERLYING STOCK OR INDEX. FUTURES TRANSACTIONS ARE TRADED ON A PAYMENT OF A MARGIN.

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NIFTY / INDEX FUTURES

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  1. A FUTURES CONTRACT IS A DERIVATIVE PRODUCT WHOSE VALUE DEPENDS ON THE UNDERLYING STOCK OR INDEX. FUTURES TRANSACTIONS ARE TRADED ON A PAYMENT OF A MARGIN. EXAMPLE: Ram buys a futures contract of Infosys. If the price of Infosys rises by Rs 1000, Ram makes a profit of Rs.1,000/- on the futures. But if the price of Infosys falls by Rs 1000, Ram makes a loss of Rs.1,000/- on the futures. Dealing in futures is exactly like dealing in stocks except for some key differences: • Futures contracts have an expiry period of 1,2 or 3 months (stocks can not be held forever) • Futures contracts require payment of a margin (stocks require 100% payment) • Futures contracts are cash settled (stocks involve transfer to/ from demat accounts) • You can take long and short positions in futures (in stocks you cannot go short)

  2. NIFTY / INDEX FUTURES • By trading in Nifty futures, you are speculating the direction of the market. You can earn money whether the markets are bullish (up) or bearish (down) If you expect the NSE index to rise, you should buy Nifty futures. If you expect the NSE index to fall, you should sell Nifty futures.

  3. Duration CONDITIONS:- • Futures contract are available for 1, 2 and 3 months. • Each contract expires on the last Thursday month • There is a Fixed Margin and Lot Size for trading of a contract.

  4. Margins Let’s take the Example of Nifty Future Lot Size – 50 Units, Price- 5200 Margin are traded on a margin basis (10%-12%) which means your initial investment is vastly reduced. The market lot is 200 which means if you go long on nifty futures @ 2000, your investment is Rs.40,000/- only (10% margin).

  5. Daily mark-to-market Irrespective of whether you close your current position, the NSE will credit the profit/ loss on the futures contract to your account on a daily basis.

  6. Cash settlement Since futures is a contract and there is no concept of delivery (as in stocks), settlement is always on cash basis. One does not need to have a demat account at all!

  7. TRADING IN NIFTY FUTURES If you expect the nifty to rise, you should buy nifty futures (and vice-versa). A 10 point change in nifty gets you Rs.2,000/- as profits on a base of Rs.40,000/- (assuming purchase price 2000, margins @ 10% and market lot 200). As futures contracts are leveraged transactions, return on investment is high compared to stocks. Though you can make excellent profits, you can easily lose money as well if you trade against the market.

  8. Day trading in nifty futures Since Nifty Futures have excellent liquidity, you can do day trading in these contracts. There are many day traders who trade only on the nifty and enter and exit positions several times a day.

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